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What is core plus real estate?

July 14, 2020
Categories: Commercial, Investments

There are plenty of terms to get your head around if you’re new to property investing. Core and Core Plus are two you might hear the experts mention. But what does Core Plus mean anyway? And what is Core vs Core Plus in real estate?

Passive investors like property investment for its consistent, stable cash flow. They might buy property with high income potential to satisfy their investment appetite, called core assets. But investors who want to go the extra yard in property investment might look at core plus real estate. So what is core plus real estate exactly?

Investors buying core plus real estate generally look for three things:

  • Income from tenants must be stable and secured for a long time
  • There should be an opportunity to add value to the property
  • Capital growth should be the result of the value-add opportunity

Let’s dive in deeper to these terms core and core plus and what they might mean for you.

What does core mean in real estate?

In investing and real estate circles, the term core relates to income.

Core real estate is great if you want to generate a passive income from a property, from tenants paying regular rent for a fixed amount of time, without a great deal of risk.

Core property is usually a set-and-forget investment. That means little hard work for you and little chance of things going awry.

What is core plus?

Core plus real estate investments are known for providing you with both income and capital growth.

Real estate investors who like to add value to a property often seek core plus assets, with the bonus of a stable income.

These value-add investors might find an investment that needs love. They then might buy the property at a low price but have to get their hands dirty to bring it up to scratch. The upside to this process is the property’s capital growth potential.

Core vs core plus

Core vs core plus can be looked at as low risk vs higher returns.

You can hold your core asset with guaranteed returns and little work to do.

Or you can take the guaranteed income and add capital value (through a bit of hard work) with a core plus real estate investment.

What is a good core plus real estate return?

Core plus real estate can provide returns of 5 per cent to 10 per cent.

If you’re a commercial real estate investor, you might be familiar with these returns, with the typical commercial property in Australia generating returns between 5 per cent and 10 per cent, and sometimes much higher.

Want more information on commercial real estate returns? Read our blog post What is a good return on a commercial property?

Being smart with your core plus real estate investment could provide you total returns of up to 40 per cent. There’s of course plenty of work and experience needed to hit total returns of these heights, and no guarantee of success, but it can be done.

Just ask us.

How to add value in real estate?

In commercial real estate, you can add value in many ways:

  • Lease agreements can be extended, so the investment guarantees you a particular income for a longer amount of time.
  • The tenant profile can be enhanced, by upgrading the occupant of your property to a business that is more established, much larger, or more profitable.
  • Physical attributes can be improved, like a new pylon sign out front of the building, an upgraded air conditioning unit, or a new coat of paint.
  • Better covenants and interest rates on your bank loan could be negotiated with the bank. A lower interest margin means a bigger net profit at the end of the day.

Core plus assets can create very successful outcomes for those invested. But can be difficult for the average investor to find – and even tougher to manage. Another option is to take out the guesswork by investing alongside the experts.

We’ve been in the property game for decades. And there isn’t a single property investment we haven’t added value to. Whether upgrading tenants or increasing visibility with new signage, our strategy is about maximising an asset’s potential.

We’re not just in property investment for income. We want to get the most out of our properties, so our investors can get the most out of their investment.

For more information on investing alongside a trusted commercial property investment business with a proven track record, get in touch with Properties & Pathways today.

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