SS94: What is Core Real Estate?

Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing what is core real estate.

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Talking Points:

  • When most investors discuss multifamily investing; the most popular strategy is value-add multifamily; however, there are different multifamily investment strategies; including core multifamily.
  • A core real estate investment should be in a primary market, newer, stabilized properties, have a low loan-to-value and lower expected returns when compared to core plus or value-add investments. Many syndicators will deem investments to be core investments but there are 5 parts that are required for an asset to be considered a core investment.
  • 1st is the location of the property; these assets must be located in core cities AND core submarkets. Growing cities with populations of 200k+ people ensure that there is liquidity (institutional end buyers) when selling. The submarket selection is as important as the city selection. Within these cities, core assets will be in solid B/B+ and A areas. There is consistent demand from credit tenants to live in this submarket.
  • 2nd is the age of the property; institutional core buyers are looking for assets that are going to be easier to maintain; they are looking for a consistent income stream with minimal maintenance issues. As properties age, their reliability of income may become an issue. Core buyers also do not want to perform renovations or major investments of capital for maintenance. They are focusing on newer assets or maybe a brand-new development that was just completed and leased up.
  • 3rd is cashflow; core buyers are targeting assets with reliable income streams; similar to a mature, blue-chip dividend stock. Core buyers will increase rents over time along with the market and inflation but core buyers do not want to worry about being paid rent on time. Core assets have solid tenant bases that provide a reliable income stream to the owner.
  • 4th is the leverage or the loan-to-value. So far you will notice that core assets are newer, high-quality, low-risk assets with predictable income streams, in liquid markets where there are consistent buyers. This now has to be paired with low debt levels. An asset cannot be a core asset if the property is having a high loan to value. An asset with a high loan-to-value will be disqualified as a core asset. Debt levels for core assets are typically 40%-50% with there being 50%-60% of the equity in the property. This makes the core asset a very low-risk investment. In any income disruption event; there is a very low likelihood that the core buyer will lose the asset.
  • 5th are the expected returns; typical returns for core assets are usually in the mid-single digits; if any manager is expecting double-digit returns or even returns 9%+; you really need to perform your due diligence into the deal and into the manager. The market could be smaller, the loan-to-value could be higher, and the asset could be older. This will all add to the risk level of the investment.
  • Core assets are low-risk investments. They are similar to mature, dividend stocks, not growth stocks. If you are looking for a double-digit return; core asset investing is not what you are looking for. You are not doubling your money in 5 years with a core asset. Core assets are for investors looking for diversification in real estate who want to invest in a company with the strength of say Coca-Cola or McDonalds.

Transcript:

Charles:
Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing what is core real estate.

Charles:
Have you always wanted to invest in real estate, but didn’t have the time, didn’t know where to find the deals, couldn’t get the funding and didn’t want tenants calling you. Since 2006, I’ve been buying income producing properties and great locations that provide us with consistent passive income. While we wait for appreciation in the future and take advantage of tax laws while we’re waiting and unlike your financial advisor, we invest alongside our investors in every property we purchase. Check out to investwithharborside.com. If you like the idea of investing real estate, if you like the idea of passive income partner with us at investwithharborside.com, that’s investwithharborside.com.

Charles:
When most investors discuss multi-family investing, the most popular strategy is value add multi-family. However, there are different multi-family investment strategies, including core multi-family. A core real estate investment should be in a primary market. Newer, stabilized properties, and have a low loan to value with lower expected returns will compare to core plus or value added investments. Many syndicators will deem investments to be core investments, but there are five parts that are required for any asset to be considered a core investment. First is location of the property. These assets must be located in core cities and core submarkets. Growing cities with populations of 200,000 plus people ensure that there’s liquidity. In other words, institutional and buyers, when selling. The submarket selection is as important as a city selection within these cities. Core assets will be in solid B, B plus A areas. There’s consistent demand from credit tenants to live in this submarket. The second is the age of the property. Institutional core buyers are looking for assets that are going to be easier to maintain.

Charles:
They’re looking for a consistent income stream with minimal maintenance issues. As properties age, the reliability of income may become an issue. Core buyers also do not wanna perform renovations or major investments of capital for maintenance and for updates, they are focusing on new assets or maybe a brand new development that was completed and leased up. Third is cash flow. Core buyers are targeting assets with reliable income streams. They’re really buying the income stream of the property similar to a mature blue chip dividend stock. Core buyers will increase rents over time along with market and inflation, but core buyers do not wanna worry about being paid rent on time. Core assets have solid tenant bases that provide a reliable income source to the owner. Fourth is leverage or the loan to value. So, so far you’ll notice that the core assets are newer, high quality, low risk assets with predictable income streams.

Charles:
In liquid markets where there are consistent base of buyers, this now has to be paired with low debt levels. An asset cannot be a core asset if the property’s having a high loan of value. And this is where I see a lot of syndicates make mistakes. They consider something a core asset, and then they have it leveraged all the way up. An asset with a high loan of value will be disqualified as a core asset. Debt levels for core assets are typically 40% to 50%. With there being 50% that 60% of equity in the property. This makes the core asset a very low risk. In investment in any income dis disruption event, there is a very low likelihood that the core buyer will lose the assets. Fifth are the expected returns. Typical returns for core assets are usually in the mid single digits. If any manager is expecting double digit returns or even returns of 9% plus, you really need to perform your due diligence into the deal and into the manager.

Charles:
The the market could be smaller. The loan to value could be higher, the asset could be older, and this all adds to the risk level of the invest. And core assets are not risky investments. Core assets are low risk investments. They are similar to mature dividend stocks, not growth stocks. You know, if you’re looking for double digit returns, core asset investing is not what you’re looking for. You are not gonna be doubling your money in five years with a core asset. And then core assets offer investors looking for diversification in real estate who want to invest in a company with the strength of, say, Coca-Cola or McDonald’s. These aren’t really get wealthy assets. These are really stay wealthy assets. So I hope you enjoyed, Please remember to rate, review, subscribe, so make comments and potential show topics at globalinvestorspodcast.com. Look forward to two more episodes next week. See you then.

Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar, LLC, exclusively.

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