RealCrowd CEO, Adam Hooper, was interviewed by Michael Murray of Benzinga to discuss the ins and outs of commercial real estate investing.
RealCrowd is an online real estate marketplace where accredited investors can invest into commercial real estate directly with the real estate manager listing the opportunity.
How Does Real Estate Investing Work For Passive Investors?
Adam breaks down 3 common ways investors access real estate investments.
- Buying Your Own Property- Investors that purchase and operate their own property
- REIT - Investing in shares of a REIT, often via the stock market. With a REIT you are investing into an operating company that owns the real estate. REITs offer liquidity but can also face similar volatility to the overall stock market.
- Crowdfunding - The RealCrowd model allows investors to passively invest into private real estate investments. Under this model, investors invest directly with a real estate manager. The manager is tasked with managing the property, tenants, executes the strategy, and reports back to investors.
The 3 Primary Metrics To Estimate A Target Return For An Investment
- IRR: Internal Rate of Return - The target annualized effective compounded return rate. IRR includes both the cashflow during the hold of the asset and the appreciation from the sale of the property.
- Cash-on-Cash: The monthly/quarterly distribution made to investors as tenants pay rent. (Rent Collected - Expenses) / Amount Invested = Cash on Cash
- Equity Multiple: The amount of total capital returned (includes cash on cash and the appreciation from the sale of the property) / the total equity Invested.
What Should You Consider When Looking At Market?
- Population Growth & Trends
- Employment Growth
- Vacancy Rates & Occupancy
- Traffic Counts
- Migration Trends
- New Construction
The 4 Main Real Estate Investing Strategies
Real estate categorizes the general risk/reward of a property into four different asset profiles.
- Core: Lowest Risk/Lowest Reward - These properties require no renovations and are often positioned in prime markets with high occupancy.
- Core Plus: Lower Risk/Lower Reward - These properties might require some renovations, with below market rents, and some vacancy.
- Value Add: Medium-to-High Risk/Medium-to-High Reward - These properties entail renovations or re-tenanting to bring the property up to market.
- Opportunistic: Highest Risk/Highest Reward - These properties will require major renovations or a ground-up development.
Property Types With Interesting Storylines
- Service Retail
What Can Be Expected After Investing In Private Real Estate?
The key difference between private real estate and public investments is the relationship that you build directly with the real estate manager.
Managers typically report to investors on a monthly or quarterly basis and often make themselves available to discuss updates directly with investors.
What Are Some Trends RealCrowd Will Be Watching In The Future?
One of the most interesting things right now is the office market. How is the return to work going to look?
The demographic trends, with homeownership rates declining and house affordability becoming a challenge.
The interplay between retail and industrial.
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