When we think of the benefits of real estate investing, income often comes to mind. While supplemental, and sometimes even passive depending on how you invest, income is a great reason to invest in real estate, there’s another big perk to consider—flexibility.

There’s no one way to invest in a real estate property or just one type of property where you can invest. Depending on your appetite for risk, desired return on investment (ROI), your current financial standing, what you want to get out of your investment (recurring income or an appreciating asset), your investment property’s condition, and other factors, you could apply a number of strategies to how you invest.

Some of the most common real estate investing strategies include core, core plus, value-add, and opportunistic. Each comes with its own set of benefits and disadvantages, risks, levels of property management, and renovation work. Keep reading to learn more about these strategies and which one will best fit your real estate investment plans.

What Are Core Real Estate Investments?

A core real estate investment property often works well for new real estate investors or someone who is just seeking consistent income. These properties are often in good areas in major markets, and they have low to no vacancies. Because core investments are usually in good shape, there’s not much to manage or renovate with these properties, and they’re easy to sell. An example of a core investment property is a newer multi-family property that has attractive amenities and is near the area’s main public transportation stations.

These properties sound ideal—recurring income, low-maintenance buildings and tenants, and good locations. But even as the most conservative of these four investment options, they aren’t without risks. Since these properties are so low-risk, there’s less potential for a strong ROI, and you’ll still face competition when trying to buy one. Plus, like with any type of real estate investment, the property could lose value over time, and tenants don’t rent forever. You will probably have to fill vacancies at some point. Despite these risks, core investments are still the safest bet compared to the other three strategies covered here.

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What Are Core Plus Real Estate Investments?

If the core investment strategy sounded promising but you want a little more upside without major risk, core plus could be the way to go. Like a core investment, core plus properties provide income-producing opportunities with good quality buildings that have high occupancy rates.

The difference between core and core plus is what makes the latter a slightly riskier investment—but also gives it a higher potential reward. The plus in this strategy’s name comes partly from the fact that there’s room to enhance a property’s ROI. That’s because core plus buildings often can use some work. So, the light repair work done on your investment property opens the door to helping increase its overall value. But keep in mind the money put into those repairs can decrease your cash flow.

Deciding between core real estate and core plus often comes down to how active of a property manager you want to be and how much money you are willing to spend to boost ROI. A core investment is lower maintenance, but because the property is in such good shape, it’s hard to find ways to make it more valuable. Core plus properties, on the other hand, can cost you more up front to tackle light renovation work, but at least you know there’s a chance your investment could grant you recurring income and increased property value.

So, while core real estate properties offer a more dependable, money-producing asset, core plus includes an opportunity to raise your investment’s overall worth.

What Are Value-Add Real Estate Investments?

While core and core plus investments mainly revolve around generating cash flow, value-add properties focus on generating exactly that—value.

The value-add strategy is extremely high-risk, high-reward. When you purchase this type of property, you’re going into the transaction with the mindset that the work you put into it will make it more valuable, and it may be some time before it actually cash flows. An example of a value-add real estate investment would be buying an older apartment building that needs repairs. You’d renovate the units, improve the building amenities, and (hopefully) eliminate the vacancies. Once you’ve done the heavy lifting in the form of renovations, then your investment may begin to cash flow.

Purchasing a value-add property comes with plenty of risk. You could put a significant amount of money and time into improving a building and see no payoff in the end. This could be because you can’t find enough tenants or you can’t justify rent increases, or maybe it’s because the market isn’t in a great place by the time your building is ready to rent to people.

On the other hand, this serious risk could lead to an even greater reward. If the renovations and amenities you added are significant enough, you could have no issue attracting tenants and charging them higher rent than before you took over the property.

If you’re willing to invest the capital upfront knowing that it will take some time for your property to cash-flow and that you are up for being hands-on with property management, a value-add property could be well worth your time and money once the work’s been completed.

What Are Opportunistic Real Estate Investments?

All of the previously mentioned real estate investment strategies come with a certain level of risk, but they don’t compare to opportunistic real estate investments.

An opportunistic investment is a major development project. While value-add real estate investments are risky, they are still typically established residences that need repairs. Taking on an opportunistic investment often involves overhauling a major property, such as transforming an office building or shopping center into a multi-family apartment complex or redeveloping a distressed hotel.

Jumping in on such a vast project takes a lot of money and time—it could be years before an investor sees any kind of ROI. Unlike core and core plus investments, you won’t get any cash flow when an opportunistic property is initially purchased. But much like value-add investments, opportunistic properties can yield significant cash flow and ROI once the work is completed. Opportunistic properties also present a great chance for appreciation if the goal is to sell.

The risks are numerous with this type of investment—construction, market, financial, and leasing, to name a few. If you execute your plan for the property, however, you could be greatly rewarded for your efforts.

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What Is the Best Real Estate Investment Strategy?

It’s difficult to define the “best” real estate investment strategy because what’s “best” for one investor might be too risky, or not risky enough, for another. If you’re just looking for an investment property that will yield predictable, recurring income with minimal risk, core real estate investments are ideal. If that situation sounds nice but you want a greater reward and don’t mind putting in some more money and work, core plus could be a good fit.

Meanwhile, for those willing to take a bigger swing, buying a value-add real estate investment property comes with financial risk, not to mention a significant time commitment for renovations. But a bigger reward at the end of the process is possible compared to core and core plus. And for those with the resources and time, jumping on an opportunistic real estate investment is a major undertaking to start, but it can deliver the highest ROI and greatest appreciation upon completion.

The good news is, as a real estate investor, you don’t have to choose between these strategies. You can add them all to your portfolio as you move along in your real estate investment journey and achieve your goals.

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