Investment Strategies
When it comes to investment strategies, we often hear the term “risk-reward” but what does it mean? Every multifamily investment has a unique return structure, but there are standard investment categories that help investors immediately understand the type of deal they are evaluating and the associated risk. The investment horizon can range from short-term to long-term, high-risk to virtually no-risk, and produce high yield returns or those that are diminutive. Risk-reward is the relationship between the amount of return earned on an investment relative to the risk undertaken. Ultimately, investor goals and objectives vary based on their individual needs, and understanding your financial goals is critical for a successful investment strategy.
When considering multifamily investment strategies, they typically range from low risk/reward to high risk/reward and focus on preserving and growing your capital. Below are four common categories:
Core (6-8% returns): Core Properties are generally low risk and low reward, allowing you to preserve your capital but unlikely to experience any massive growth. These investments are generally not volatile and returns are nearly guaranteed at a steady rate. Core properties are new buildings, in highly desired locations and with low leverage. These would compare to an income investment fund in the stock market.
Core Plus (10-12% returns): Core Plus Properties are a step up from Core Properties, with slightly more risk and reward. They are generally 5-10 years old and require light improvements to the property but not heavy rehabilitation.
Value Add (14-15% returns): Value Add Properties generally require more involved maintenance and upgrades or require an overhaul to the property management. General Partners will invest in a value-add property because they see a problem that they can solve and that will eventually result in a profit, though profits may not be immediate. Value Add properties will have higher leverage, around 75%, and are a higher-risk investment. These would be similar to a growth investment in the stock market.
Opportunistic (+15% return): This is the high risk and high reward property that allows an investor to make significant profits. Opportunistic multifamily investments might be a property that is struggling with 30% vacancies and needs a major overhaul of its management strategy; profits might be nonexistent for months or years but should soar once things are turned around. These properties require a very experienced and capable General Partner to deliver the vision. This would be comparable to a speculative growth investment in the stock market.
We seek to understand our investors’ needs and align them with the appropriate project. Please schedule a call with us to discuss your investment goals and we will ensure you are notified when we go under a contract on a project that meets your needs.
