This estate planning tool not only diversifies your portfolio but can disperse predictable income while proactively growing your investment.
Core Plus investing in commercial real estate is a strategy for investors to earn a steady income from their investment, while also taking on moderate risk to make higher returns potentially. This strategy involves investing in a “core” portfolio of stable, income-generating properties, such as office buildings or apartment complexes. The “plus” part of the strategy involves the acquisition of properties that may need minor cosmetic or maintenance work completed, and/or leasing up to full occupancy.
There are four investment strategies to consider with different risks and rewards types. While each strategy has its strengths and weaknesses, Core Plus can be considered the “Goldilocks” of the group since it offers both stability and moderate growth in return for your investment.
Continue reading to learn more.
Core Plus Investments Provide Stable Income
Core Plus real estate investments can earn a stable income through the rental income generated by the “core” properties in the portfolio. These properties are typically stable, income-generating assets such as office buildings, retail centers, or apartment complexes.
They are often located in established, desirable areas and have a high occupancy rate, which can provide a steady stream of rental income for the investor.
For example, imagine if your portfolio includes a stable office building in a busy downtown area. The office building is fully leased to a variety of tenants, including businesses and professionals, and generates a steady stream of rental income for you. This rental income can provide a stable source of income, even if the value of the office building fluctuates.
Core Plus Investments Offer Moderate Growth
The ‘Plus’ in the Core Plus strategy includes the potential to earn higher returns on your investment if your capital is invested into assets that need minor cosmetic and maintenance completed, and/or leasing to fill occupancy. Additionally, if your asset is in an “up-and-coming” area, your initial investment can potentially increase in value over time as the area develops.
For example, perhaps you invest in a modern building that virtually needs no cosmetic or maintenance improvements. However, the asset is in an evolving and growing area, but it currently does not have a strong, or premier tenant base. This investment categorizes as a Core Plus investment rather than a ‘Core’ investment because the current renters are undesirable, the occupancy is low, and the area is still developing. With time, as the developers leave and new renters are acquired, both your passive income and growth on your initial investment have the potential to climb.
Core Plus Investments Provide Diversification
Another benefit of investing in a Core Plus strategy is that it allows you to diversify your portfolio, spreading out your risk using different commercial real estate assets. By including both stable, moderate and higher-risk investments, you can potentially reduce the impact on your portfolio if any one investment underperforms.
For example, if you invest in a fund that includes properties where growth trends are not performing as expected, the income generated from the investment can help you potentially offset those losses.
Click here to learn the differences between Core and Core Plus investing strategies.
What to consider before investing in Core Plus Real Estate
When considering whether to invest in a core plus real estate fund that might be a good fit for your portfolio—or any private real estate investment, for that matter—it’s important to first establish a foundational framework.
Key components include:
- Clearly defining your short-, medium- and long-term financial goals
- Considering whether your priority is to perfect a passive income stream, build wealth, or something in between
- Understanding your risk tolerance
- Assessing your ability to hold illiquid investments
Most individual investors will benefit from the support of financial, tax, and legal advisors throughout the asset allocation and portfolio construction process.
Resources
- Value Add Commercial Real Estate Explained
- What’s the difference between Core and Core Plus Real Estate Funds
- Risk vs. Reward: Which Investment Strategy Fits Your Profile?
- Podcast: Caliber CEO Chris Loeffler discusses the differences between core, core plus, value add, and opportunistic strategies
- SEC investor education: Private funds
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About Caliber
Caliber is a leading vertically integrated asset management firm whose primary goal is to enhance the wealth of investors seeking to make investments in middle-market assets. We strive to build wealth for our investor clients by creating, managing and servicing proprietary products, including middle-market investment funds, private syndications, and direct investments. Our funds include investment vehicles focused primarily on real estate, private equity, and debt facilities. We market our services through direct sales to private investors, wholesaling to investment advisers, direct sales to family offices and institutions, and in-house client services. Caliber’s middle-market specialty allows the Company to compete with agility and speed in an evolving arena of alternative investments. Additional information can be found at Caliberco.com and CaliberFunds.co.
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If you would like to speak to someone about diversifying your retirement accounts, contact us at [email protected] or call (480) 295-7600 to schedule a call with a member of our Wealth Development Team.
If you would like to learn more about Opportunity Zone Investing, Caliber has put together a special guide that cuts through the myths and misconceptions and outlines the benefits, the risks, and the upcoming deadlines you must know to be able to participate. Get access to the guide here.
Investor Considerations
The information contained herein is general in nature and is not intended, and should not be construed, as accounting, financial, investment, legal, or tax advice, or opinion, in each instance provided by Caliber or any of its affiliates, agents, or representatives. The reader is cautioned that this material may not be applicable to, or suitable for, the reader’s specific circumstances, desires, needs, and requires consideration of all applicable facts and circumstances. The reader understands and acknowledges that, prior to taking any action relating to this material, the reader (i) has been encouraged to rely upon the advice of the reader’s accounting, financial, investment, legal, and tax advisers with respect to the accounting, financial, investment, legal, tax, and other considerations relating to this material, (ii) is not relying upon Caliber or any of its affiliates, agents, employees, managers, members, or representatives for accounting, financial, investment, legal, tax, or business advice, and (iii) has sought independent accounting, financial, investment, legal, tax, and business advice relating to this material. Caliber, and each of its affiliates, agents, employees, managers, members, and representatives assumes no obligation to inform the reader of any change in the law or other factors that could affect the information contained herein.
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