Deciding where to invest in a property can be a difficult decision. Identifying what risks your willing to take in order to receive a return is a crucial step in selecting a location. Understanding the four strategies of real estate investment allows you to build a diverse and safe portfolio, which provides you with a clear time span of when you can expect to receive your return.
Core Assets: Core assets are regarded as traditionally low risk investments and consist of properties in major cities and metropolitan areas. Homes in these areas are usually high in demand due to their preferred location and ease of access to highways and local amenities. Investments of this type are regarded as the safest, according to Viewthespace.com, because they involve purchasing well built and high quality properties and leasing them to equally as quality and stable leases. Although this is the safest strategy in terms of risk, investments of this type usually produce the smallest overall lowest return on investments. According to the real estate funding review, rate of return for core investments usually lies between 7 to 11%.
Core Plus: Core Plus investments are regarded as moderate to low risk and include areas within 10 miles of a major city or metropolitan area. Homes in these areas are traditionally located in suburbs or near historical locations. Properties in these areas usually have good neighborhoods that attract good tenants who typically have slightly lower credit scores than tenants who reside in core investment properties. Investors who use the core plus strategy target stable properties that have the potential to increase ROI through small renovations than can be completed quickly before leasing. Rates of return on core plus properties usually range from 8 to 12%.
Value Added: Investments using the value added strategy are usually regarded as medium to high risk. These properties can be located in core and core plus areas, although usually located in rougher neighborhoods. These properties often require significant improvements before any return can be collected. Investors who purchase these properties often take out additional loans to complete small repairs or renovations before seeking tenants. After renovations are completed the property is able to generate a cash flow or sell at much higher than what could have been previously possible. Investors who follow this strategy typically receive return rates of 10 to 15%.
Opportunistic: Opportunistic investments involve remodeling abandoned or distressed properties that are unable to facilitate tenants or generate immediate revenue typically within the six months to a year after the purchase date. Land development projects that result in homes or other commercial properties also fall under the opportunistic investment umbrella. Investors who chose this strategy often have more complicated improvement plans than value added investors because there is more work required before the properties are ready to list. According to Biggerpockets.com, opportunistic investors have the highest risk due to surprise repairs that often require significant time and money. However, if remodeled and marketed with the help a relator or investment specialist, these properties have the highest potential rates of return ranging between 10 to 15%
Each investment strategy offers its own unique advantages and disadvantages. Before selecting an investment strategy or potential property you should always consult an experienced relator or investment specialist to discuss all possible expenses and obtain accurate estimates on your rate of return. For all your investment needs, give Rent it Network a call for always fast, always reliable and always professional advice.