Core, Core Plus, Value-Add and Opportunistic are terms widely used to define the risk and return characteristics of a real estate investment. As Ali Ata mentions, these approaches range from conservative to aggressive, and tend to be defined by both the physical attributes of the property, as well as the amount of debt used to capitalize a project.

Ali Ata sheds light on four major approaches for real estate investment.

Real estate investors employ a range of strategies with distinct risk and return profiles. Core investing, for instance, focuses on stable, income-generating properties in key locations. On the other hand, opportunistic investing often targets distressed properties or development projects. Investors must have a good understanding of these strategies, in order to identify which investments would be right for their portfolio.

A core investment is considered to be the safest form of property investment. After all, a typical property of this type has a good location, excellent quality, as well as involves low risk and has a steady, predictable return. An example of such property can be a class A office building in New York City, which is likely to have little to no vacancy due to its location and high demand within the marketplace. Core investments usually prove to be pretty resilient and withstand economic hardships. Investors wanting to create a new source of passive income for a long period of time should consider acquiring a core investment.

Next comes Core Plus properties. They involve a moderate amount of risk and provide a moderate return. Their location might be as attractive as that of a core property, but may have an expiring lease or some other factor that increases the risk and return. An example of such property would be a cash-flowing asset that requires minor tweaks to increase net operating income (NOI). Investors can acquire this property for much less than what a core investment would have cost, and subsequently make minor renovations and cosmetic improvements to increase their return. Core plus investing is sensitive to market cycles and can slow down when markets cool.

Value-Add investments involve superior risks than core plus, but can deliver medium to high returns if executed properly. This investment approach is popular among seasoned investors. An example of such a property type can be a dated apartment complex with deferred maintenance and has to be renovated completely. Due to the capital that goes into fixing these properties and the amount of time required to execute the strategy, value-add investments do not provide ROI for a long time. Leasing is important to such strategies, as value-add properties typically have a higher vacancy rate upon acquisition. After the property has been renovated, filled its vacancy, and is generating a steady NOI, it can be resold as a core investment property.

Ultimately, there are opportunistic properties. In the opinion of Ali Ata, these properties tend to have the highest risk and reward. These usually require a considerable amount of redevelopment and tend to come with the highest vacancy level compared to other investment properties. Investors choosing opportunistic properties focus on the bigger picture, and can enjoy significant ROI over the long term.