Origin Principal David Scherer explains the five pillars of an opportunistic real estate investment and who should consider investing in them. Opportunistic investments are the real estate equivalent to venture capital, where you’re investing heavily in the earliest stages of development. Investors expect to be compensated for this risk, and that’s why opportunistic investments should have the highest expected returns.
1) Location
Opportunistic investments can vary greatly in terms of location. At Origin, we stay within our target markets, but other opportunistic investors may choose smaller, less liquid cities and submarkets.
2) Vintage
Opportunistic investments have no set range when it comes to vintage. They are often brand new construction, but can also be buildings that are entirely gutted and rebuilt. The key with opportunistic is that you’re creating a completely fresh start for the given investment.
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3) Cash Flow
Opportunistic investors aren’t paying attention to existing cash flows because there shouldn’t be any. With opportunistic investments, you are reinventing or developing the building and will need to build out those cash flows after construction.
4) Debt to Equity
Opportunistic investing starts at around 70% debt and can go up through 90-95% debt.
5) Expected Returns
Opportunistic investments should have the highest expected return of all real estate investment types because of the substantial risk taken.
Who Should Invest in Opportunistic Real Estate?
Investors who tend towards early stage stocks or venture capital should consider opportunistic real estate investments. You should ensure that a high-risk investment fits into your portfolio before considering opportunistic investments.
