There are four basic real estate strategies that every potential real estate investor needs to know and understand. The strategies range from conservative in nature to aggressive in nature. The strategies are:

• Core
• Core Plus
• Value Add
• Opportunistic

Here is what you need to know about each of these investment strategies:

Core - Core investment is the most conservative of the four strategies. Core investment properties are stabilized, income-generating properties that are typically acquired and held as an alternative to bond-type Investments. Essentially, this type of real estate investment generates predictable and consistent cash flow with little or no management input on the part of the investment owner. From the perspective of the owner of the investment, these investments are passive.

The tenants that occupy Core investments are generally high-quality, credit – rated tenants and they are subject to long-term leases. The properties are of high-quality. An example of a Core investment property would be a single tenant triple net at least building leased to Walgreens or CVS Caremark. Another example would be an office building leased to the federal or state government on a long-term basis.

Core Plus - Core Plus real estate Investment properties are properties that have the potential for growth and also provide income to the owner. These investments have a low to moderate degree of risk as well as the ability to increase the property’s cash flow through management efficiency and property improvement. In general, this type of property is of high-quality.

The cash flow of a Core Plus investment may be less predictable than a core investment. While the cash flow from the investment may be significant, some of that cash flow will have to be escrowed to address future maintenance issues. An example of a Core Plus investment would be a well-located, 10-year old stabilized class “A” apartment building.

Value Add - Value Add investments are basically “growth“ investments. The growth is attained by tapping into the potential to produce tremendous additional cash flow once the “value“ has been added through improved management, increased occupancy and/or elimination of deferred maintenance. At the outset, these investments may have limited or no cash flow. They are generally deemed to have moderate to high levels of risk. An example of a Value Add investment is a well-located, poorly maintained class “C” apartment building that will be upgraded to a class “A” building.

Opportunistic - Opportunistic real estate investments are risky investments that usually have no cash flow and may not receive a return on investment for three or more years. However, these investments have the potential to produce a significant amount of cash flow and a very high rate of return upon the completion of the project. Examples of opportunistic investments are the repositioning of a failed building or a ground up development project.

It is imperative that investors know and thoroughly understand the differences that exist among these real estate strategies so that they can thoroughly assess the risk of each approach. In general, conservative investors should be focused on Core and Core Plus investments. Investors who are willing and able to absorb greater risk should gravitate toward Value Add and Opportunistic investments.