Core investment properties exhibit the lowest risk and lowest potential return. These properties are the most conservative of the three risk profiles, providing investors with more predictable returns. Core properties may exhibit stabilized occupancy, credit rated tenants, longer lease terms and/or prime locations. They also generally require little to no immediate capital improvements for the owner. 

Core properties generally have plentiful financing options available (assuming a satisfactory borrower) and may provide a relatively high level of income security but little opportunity to increase yields in the near-term. This risk profile generally produces low to moderate capital appreciation in the short-term and the expected holding period is often longer term (10-15+ years).

A core plus investment strategy in real estate involves acquiring stabilized properties with steady income (core properties) while also seeking opportunities for enhancement (value-add component). Investors aim to improve these properties through renovations or repositioning to increase cash flow and appreciation potential. This balanced approach offers a mix of stability and growth potential, requiring active management and a medium to long-term investment horizon to realize the full benefits while diversifying risks across different assets and markets.

Value-add real estate investments typically target properties that have in-place cash flow, but seek to increase that cash flow over time by making improvements to or repositioning the property. This could include making physical improvements to the asset that will allow it to command higher rents, increasing efforts to lease vacant space at the property to quality tenants, or improving the management of the property and thereby increasing customer satisfaction or lowering operating expenses where possible. Once the operator has successfully increased the net operating income at the property, they typically seek to sell the asset to capture the resulting appreciation in value. These operators often employ the use of medium to high leverage to finance their projects and increase returns to themselves and their investors.

Successful value-add projects will typically generate higher financial returns to investors than core investments due to the appreciation in value, however these project bear more risk due to the fact that at the time of acquisition, the property is not operating at its full potential—often times because it is not fully leased, is leased at below market rents, has not been properly maintained or is poorly managed. If the operator does not execute their proposed business plan, they can fail to meet their projections and could be forced to sell the property at a lower price than expected. For many investors, however, value add projects provide the perfect balance of risk vs. return—offering in-place cash flow at the time of acquisition with significant upside potential in the form of value appreciation.

Opportunistic real estate investments follow the value add approach but take it a step further on the risk spectrum. Opportunistic properties tend to need significant rehabilitation in order to realize their potential. Often times these assets will be fully vacant at the time of acquisition or the operator will seek to develop raw land from the ground up.

These types of projects offer the highest level of return if the business plan is successful, but also bear the most risk as the properties have little to no in-place cash flow at the time of acquisition and have the most complicated business plans. Sponsors for these projects typically employ the use of high leverage and are often subject to less favorable debt terms and higher interest rates than more stabilized properties. If opportunistic business plans are successful, they generally achieve higher returns to investors than core or value add strategies through substantial appreciation in value.