A real estate investment strategy can be broken down into four types, these are core, core plus, value add, and opportunistic investments. Investors' risk tolerance and expected returns are taken into account when differentiating these strategies.
In addition, real estate investment strategies also determine the risk-reward characteristics of each opportunity. Analyzing real estate deals requires investors to make their own assessments and identify the most appropriate investment strategy.
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A core plus strategy aims to acquire high-quality real estate assets with long-term leases, much like the core strategy. However, the former puts investors into higher-risk investments, making it slightly more aggressive.
An investment plan with core plus strategies can provide exposure to fixed-income securities. Their flexibility allows them to pursue opportunities outside of the domestic US-dollar investment-grade markets. Consequently, core plus strategies can contribute to a participant's overall portfolio return potential at different stages of their life.
The majority of investors approaching retirement require more risk-adjusted returns from their investments than equities alone can provide.
The core plus strategy emphasizes income as well as capital appreciation, making it a potentially attractive investment option for investors who want to diversify their sources of appreciation beyond equities. When rates are low or rising, a total return objective can also be beneficial to investors in the distribution phase.
Properties under this strategy are low- to moderate-risk investments in a secondary metropolitan area with significant growth potential, which can generate returns by undergoing some light physical or strategic improvements only.
Many core plus properties are occupied by resilient tenants with long-term leases; however, their quality isn't relatively as high as that of core assets.
To enhance cash flow, core plus real estate may require some physical improvements or management improvements, in contrast to opportunistic properties that require substantial renovations. The rental income generated by core plus properties is expected to be stable, and the capital appreciation will be modest for investors.
Among these types of properties are entertainment centers, medical offices, student accommodation, and self-storage spaces that perform sub-optimally.
As a way to learn more about core-plus properties, purchasing public shares can provide investors with information. However, one must realize that core plus properties have a certain amount of boldness to them. Due to this, it can be quite difficult to select the best investment opportunity from the many available options. It is possible, however, to combine core and core-plus properties through a multifamily property.
A specific example of a core plus property investment is the purchase of a 20-year-old, tenant-occupied rental property with a 40% down payment. Although it's in good condition, it will probably need some updating soon. The property is tucked away further from the city center in a decent neighborhood that shows signs of development.
When it comes to investors who prefer private transactions, the best option is to purchase an asset on their own and then partner with a private equity firm for a fractional share. Either way, it is entirely up to the investor to determine the core plus strategy by thoroughly evaluating the property and reviewing the investment documents.
Funds that invest in Core Plus can include either fixed-income investments or equity investments. Among the popular examples of this strategy are:
The JPMorgan Core Plus Bond Fund (ONIAX) is an example of a core plus fixed-income fund. Although the fund invests primarily in investment-grade bonds, it can tactically place 35% of its assets in securities outside this central category that offer enhanced returns.
Their enhancement assets are typically invested in high-yield fixed, income—and foreign debt.
Another example of a core plus fixed-income investment is the American Century Core Plus Fund (ACCNX). Investments in the fund are primarily made in high-quality, intermediate corporate bonds with maturity periods of five to ten years.
In addition to the core holdings, it invests up to 35% of its overall portfolio in alternative fixed-income investments—such as lower-grade junk bonds—in order to maximize income.
The Fund’s investor share has a $2,500 initial investment requirement. The Fund has a total expense ratio of 0.56%. The assets were worth $467.0 million as of July 2021.
JPMorgan U.S. Large Cap Core Plus Fund (JLCAX) is an example of an equity core-plus fund. While most of the fund's portfolio consists of buying and holding undervalued U.S. large-capitalization equities, it can also sell short these stocks to achieve additional returns over its benchmark, the S&P 500 Index.
Investing in this fund requires a minimum of $1,000 and a gross expense ratio of 2.11%.
These guides provide information about risk and return expectations that can be helpful to individuals and institutions investing in this real estate strategy. Additionally, investors can choose a property and manager based on their investment strategy, attitude toward risk, and investment objectives.
The four strategies, such as core, core plus, value add, and opportunistic investments will help you determine whether each investment you analyze has a potential risk and return goal. It is important for you to understand which option fits your portfolio best if you want the best returns. With our team, your investing journey will be a breeze.
Would you like to learn more about other strategies like value add and opportunistic investing, so you can make the most of your money? Let us help you by calling us at 949-881-7128 at Saint Investment Group today!
A core plus investment strategy is an approach that combines aspects of both core and value-add investment strategies. It involves investing in properties that are already generating income but have some value-add potential, such as cosmetic upgrades or increasing rents to market rates.
The benefits of a core plus investment strategy include a balance between stable cash flow and the potential for modest appreciation over time. Core plus properties have a lower risk profile than value-add investments, as they are already generating income and have a proven track record. However, there may still be opportunities to improve the property and increase returns.
Examples of core plus properties may include well-located office buildings, retail centers, or multifamily properties that are already generating cash flow but have some potential for improvement or optimization.
A core plus investment strategy may be suitable for investors who are looking for a balance between stable cash flow and the potential for modest appreciation, and who are willing to take on slightly more risk than a pure core strategy but not quite ready for a full value-add strategy.
While core plus properties have a lower risk profile than value-add investments, there is still some level of risk involved, such as market fluctuations, tenant turnover, and unexpected expenses. Investors should carefully assess the risks and rewards of a core plus investment before committing to it.
A master in Investment, Marketing, and Capital Raising.
Nic has honed his focus on the Real Estate and debt markets with Saint Investment Group and pursues large-scale Distressed Asset purchases with his partners and syndications.
