On the lower end of the scale, small but very attractive real estate deals can be found for beginners which won't move the needle for HNWIs or institutions.
Yes, at the beginning of your financial journey you're going to have less competence, but you also have less competition.
Yes, at the beginning of your financial journey you're going to have less competence, but you also have less competition.
Just looked at the UK deal with a rental yield of circa 17% (going in CAP), with room for improvement of the following:
• bathroom, kitchen & flooring
• painting the whole property
• landscaping improvements
Stabilized UYOC (yield on unlevered cost) could be north of 20%!
• bathroom, kitchen & flooring
• painting the whole property
• landscaping improvements
Stabilized UYOC (yield on unlevered cost) could be north of 20%!
Additionally, those who are focused on other asset classes fail to comprehend how RE thrives with leverage (and dies with too much of it).
Such deals could easily service two or three turns of mortgage debt and thus increase the net annual returns to well over 40% p.a.
Such deals could easily service two or three turns of mortgage debt and thus increase the net annual returns to well over 40% p.a.
Apart from a few expectations & a whole lot of luck/gambling, there isn't a strategy that could consistently replicate such returns with low levels of risk & volatility.
Of course, no strategy is perfect or without risk. Additionally, as you do well you're forced to move up...
Of course, no strategy is perfect or without risk. Additionally, as you do well you're forced to move up...
...to larger deals where competition becomes fierce.
Here, overvaluations are common & overpaying for an asset often means disappointing future expected returns.
Most GPs in PE & RE have countered that problem by having less skin in the game (or none), and more focus on fees.
Here, overvaluations are common & overpaying for an asset often means disappointing future expected returns.
Most GPs in PE & RE have countered that problem by having less skin in the game (or none), and more focus on fees.
The message for LPs and private investors is clear:
You're not a genius despite your optimism bias, so to have consistency in finding great deals, look at sectors that others won't. Too much competition eventually leads to low future returns, so run away from popularity.
You're not a genius despite your optimism bias, so to have consistency in finding great deals, look at sectors that others won't. Too much competition eventually leads to low future returns, so run away from popularity.
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