MoneySmart - Investing in Real Estate? Here are Some Strategies to Help You Build a Robust Property Portfolio
Despite all the hype around newfangled digital assets, our appetite for traditional investments like property has not waned.
SINGAPORE, Oct. 05 2022 / MoneySmart / – Despite all the hype around newfangled digital assets, our appetite for traditional investments like property has not waned.
Far from it, in fact. Both the residential housing and commercial property markets have been growing steady despite the COVID-19 pandemic, with investors pointing to tangibility and security as the key benefits.
However, as anyone looking at rising home prices would know, investing in property is not cheap. In addition, property is among the most illiquid of assets, and it comes with a lot of other costs (like legal and agent fees) tacked on.
That’s why property investment platform RealVantage is a gamechanger. It offers fractional ownership of properties, allowing investors to gain exposure to real estate without the high barriers to entry.
Building a robust property portfolio
As most of us know, diversification is a good thing in investing — putting your eggs in different baskets reduces the risks of investing and could potentially improve your returns.
In the case of property investing, a diversified portfolio would include multiple properties of different types (e.g. commercial vs. residential), in different locations (e.g. in Singapore vs. the US), and with different characteristics (e.g. rental yield vs. en bloc potential) and using various investment strategies.
For obvious reasons, this approach is highly impractical for ordinary investors like you and me. But since investors can co-invest in properties on RealVantage, it is now possible to construct a diversified property portfolio at a much lower quantum.
For now, let’s focus on 3 key strategies that investors use to build their property portfolios on RealVantage and how this could align with the life stage you are at.
Real estate investment strategy: Core
A Core strategy, as its name implies, is the foundation of many investors’ portfolios. It includes low-risk properties that are in good shape, already mostly or fully leased with steady cashflow, and usually in prime locations.
These factors point to strong underlying fundamentals and allow the investor to sit back and reap the fruits of the investment without much effort or work to be done to the property. It’s no surprise that Core investors typically employ a buy-and-hold mindset.
As a lower-risk strategy, a Core portfolio is great for those interested in wealth preservation and keeping pace with inflation. However, alongside the lower risk, its returns are relatively low.
Real estate investment strategy: Value-Add
To garner potentially higher returns from their property portfolios, investors can turn to the higher-risk Value-Add strategy or simply use it to supplement their Core portfolios.
Value-Add properties are those that can be quite easily improved with some selective enhancements. For example, they may be aged and in need of renovations, perhaps inefficiently managed, not competitively priced with respect to the area’s rental market, or a combination of the above.
With an injection of capital, it’s possible to revamp a Value-Add property and reposition it to attract a better mix of tenants, creating opportunities for increased revenue and capital appreciation. (Think of, say, Funan Mall before and after its renovation and rejuvenation.)
However, this involves a higher level of risk than Core properties. It is more suited to seasoned property investors who are able to spot and unlock the potential of such properties.
Real estate investment strategy: Opportunistic
At the higher end of the risk/return spectrum is the Opportunistic strategy. Opportunistic real estate projects can vary widely, from distressed properties with major renovations required to greenfield projects (ground-up real estate developments).
Essentially, they are higher-risk properties that involve getting the relevant permits in place and carrying out major construction or renovation works.
As with the Value-Add strategy outlined above, Opportunistic project returns are typically “back-end loaded”, meaning it will take time to see the financial benefits of the venture. This makes an Opportunistic strategy risky, especially if you have a relatively short investment horizon.
On the other hand, Opportunistic projects boast some of the highest potential returns of 20-25% per annum. However, investors must be willing to undertake significant risks and be able to wait it out.
Case study of a Value-Add property investment strategy
Let’s look at one Value-Add property case study over in the States: Embry Hills in Atlanta, Georgia.
In 2020, RealVantage co-investors acquired the 225-unit residential property, which had been underperforming despite a solid market in its location. Subsequently, the team implemented several key upgrades, including renovations and replacing the property management staff.
Once a tired apartment complex, Embry Hills was transformed into attractive, modern residences for Atlanta’s middle-class families willing to pay higher rents. For investors, this resulted in an IRR of 37.8% over an investment period of 20 months, far higher than projected returns of 12% over 5 years.
Embry Hills is a classic example of the Value-Add strategy at work. While the venture did entail risk, the downsides were mitigated with RealVantage’s comprehensive research, clear strategy, and connections with the right local partners.
Using strategies to sync with your life stage
No two investors are the same; investors should tailor their portfolios to their life stages, risk appetites and financial goals.
For example, a retiree, having amassed a lifetime of wealth, would likely be interested in wealth preservation and earning a stable income from his assets. A conservative mid-career worker may opt for a similar Core portfolio but from time to time take part in the occasional Value-Add deal.
On the other hand, a young professional with a larger appetite for risk — and a longer investment horizon — may seek exposure through an Opportunistic portfolio.
With RealVantage, investors can adjust their portfolios and strategies as befitting their current needs in life.
Regardless of which strategy works best for you, RealVantage has an impeccable track record, successfully delivering returns on its investment opportunities to-date. With a growing pool of investors, there will be more opportunities to come for RealVantage members.
Want to find out more about RealVantage, the smarter way to co-invest in real estate? Sign up and start building a diversified real estate investment portfolio at www.realvantage.co
© This article was published in MoneySmart on 04 Oct 2022. All copyright and other intellectual property rights in the article belongs to Catapult Ventures Pte Ltd.
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Disclaimer: The information and/or documents contained in this article does not constitute financial advice and is meant for educational purposes. Please consult your financial advisor, accountant, and/or attorney before proceeding with any financial/real estate investments.