SS95: What is Core Plus Real Estate?

SS95 What is Core Plus Real Estate

Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing what is Core plus 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. We spoke on our last episode about core real estate investments, but in this episode, we are going to discuss core plus real estate investments.
  • A core plus real estate investment is similar to a core real estate investment, but they contain minimal risk factors that require consideration. There are 5 requirements for an asset to be considered a core plus investment.
  • 1st is the location of the property; these assets must be located in growing cities with populations of 200k+ people to ensure that there is consistent liquidity (consistent buyers). The submarket selection is as important as the city selection. Core plus assets may be slightly outside of submarkets with the highest liquidity; however, the submarket needs to be liquid.
  • 2nd is the age of the property; core plus properties are marginally older than core assets; up to 25 years old. Core plus assets will require minor renovations and updates but the renovations required must be minor to still be considered a core plus asset. A core-plus buyer should understand that they will need to invest a minimal amount of money (when compared to value-add) to complete their business plan.
  • 3rd is cash flow. In most situations, core plus assets require a minor investment in order to reach their full potential. Additionally, this is achieved when management is changed and expenses are reduced. Once the business plan for a core plus asset has been completed; the property should operate similarly to a core asset with a consistent income stream (with minimal risk) that will experience consistent cash flow and moderate growth.
  • 4th is the leverage or the loan-to-value. An asset cannot be a core plus asset if the property has a high loan to value. An asset with a high loan-to-value will be disqualified as a core plus asset. Debt levels for core plus assets are typically 40%-60% with there being 40%-60% of the equity in the property. This makes the core plus asset a lower-risk investment.
  • 5th are the expected returns; typical returns for core plus assets are 7%-10%. Be cautious of managers that are estimating higher returns. Higher returns could signal 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 plus assets are lower-risk investments. They are similar to dividend/growth stocks, not growth or strictly dividend stocks themselves; they are a mix. If you are looking for a higher single-digit to double-digit return with a little additional risk; core plus real estate assets could be what you are

Transcript:

Charles:
Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing what is Core plus 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 multifamily investing, the most popular strategy is value add multifamily. However, there are different multifamily investment strategies. We spoke in our last episode about core real estate investments, but on this episode we’re gonna discuss core plus real estate investments. A core plus real estate invest is similar to a core real estate investment, but they contain minimal risk factors that require consideration. There are five requirements for an asset to be considered a core plus investment. First is a location on the property. These assets must be located in growing cities with populations of 200,000 plus people to ensure that there is consistent liquidity, consistent buyers. The submarket selection is as important as the city selection. Core plus assets may be slightly outside of submarkets with the highest liquidity, also known as core submarkets. However, the submarket needs to be liquid. Second is the age of the property. Core plus properties are marginally older than core assets up to 25 years old.

Charles:
Core plus assets will require minor renovations and updates, but the renovations required must be minor to still be considered a core plus asset. A core plus buyer should understand that they will need to invest a minimal amount of money when compared to value add investing to complete their business plan. Third is cash flow. In most situations, core plus assets require a minor investment in order to reach their full potential. Additionally, this is achieved when work is done when management is changed and when expenses are reduced. Once the business plan for a core plus asset has been completed, the property should operate similar to a core asset with a consistent income stream with minimal risk that will experience consistent cash flow and moderate growth for investors. Fourth is the leverage or loan to value. An asset cannot be a core plus asset. If the property is having a very high loan to value, an asset with a high loan to value will be disqualified as a core plus.

Charles:
Asset debt levels of four core plus assets are typically 40% to 60% with there being 40% to 60% of equity in the property. And this makes the core plus asset a lower risk investment. Fifth are the expected returns. Typical returns for core plus assets are 7% to 10%. Be cautious of managers that are estimating higher returns. Higher returns could signal that the market could be smaller, so less liquidity. The loan to value could be higher, the asset could be older, and this will all add to the risk level of the investment. Now with core plus assets as being lower risk investments, they’re similar to a dividend growth stocks not growth or strictly dividend stocks themself. They’re a mix. You know, if you’re looking for a higher single digit to double digit return with a little additional risk, core plus real estate assets could be what you’re looking for. So I hope you enjoyed. Please remember to rate, review, subscribe, submit comments and potential show topics, global investors podcast.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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