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Don't Ignore Real Estate Investment Preferences

Don't Ignore Real Estate Investment Preferences

Any wealth management professional knows that the investor comes first. When an advisor is working with successful professionals and high net-worth individuals (HNWIs), he or she recognizes that investment preferences are more than checkboxes on a standard investor questionnaire. Experienced investors often have an interest in alternative asset classes, the most mainstream being passive real estate investments. And with this comes more unfamiliar preferences.


Demonstrating knowledge of the key real estate specific terms can help an advisor build a rapport with a real estate savvy investor. Going further and being able to proactively identify private real estate investment opportunities that align with an investor can be a huge value-add to the client relationship, even if an advisor can’t directly help with the investments. But sifting through the mass of private deals that are out there can require significant legwork. Understanding clients' real estate investment preferences is a good start.



Crowdfunding Buzz has Muddied the Waters

The buzz around crowdfunding has unfairly shifted the focus for private deals from investors over to companies raising capital. Of course the importance of raising private funds can not be downplayed. Without the money to acquire properties and run development projects, real estate activity is limited to just the largest operators that can satisfy the underwriting requirements of the banks.


Accredited investors are essential to private real estate projects, allowing a broader range of buildings to be constructed, different classes of homes to be renovated, and commercial buildings operated to meet the needs of small businesses. The question many wealth managers have is how they can use this fact to reinforce their client relationships, while ensuring they understand how real estate equity investments affect the balance of a portfolio.


Despite all the buzz around crowdfunding, traditional mechanisms for raising private money for real estate projects have only grown stronger. Private placements, alongside hard money lenders, fund many real estate projects today. It is these projects, ranging from small single family homes, through large multi-family buildings, apartment complexes, offices and commercial constructions that present opportunities for accredited investors. And it is shares in real estate equity investments that offer far higher rewards than REITs, a class that is vying with hedge funds for who can charge the highest fees.



What Do Real Estate Investors Want? 

Small developers have to work as hard to raise the tens or hundreds of thousands of dollars that are needed for a “fix and flip” as the experienced syndicators and project sponsors raising tens of millions to acquire and manage a 500 unit apartment complex. Each operator has his chosen sweet spot. With this in mind, it is important to recognize that investors with a bias towards real estate also have specific preferences for certain types of project. They know what type of projects they can analyze best, the level of risk they feel most comfortable with and how much control they want over a project. This is what guides their real estate investment decisions.


The attributes real estate investors typically use to narrow down their list of viable projects include:


  • Equity type
    Equity, Hard Money, Mezzanine,...

  • Property type
    Multi-Family, Office, Industrial, Self-Storage, Hospitality,...

  • Asset class
    A+, A, B+, B,...

  • Neighborhood class
    A+, A, B+, B,...

  • Risk profile
    Core, Core Plus, Value Add, Development, Opportunistic

  • Geography
    States, cities, regions,...


And the list goes on, as with any criteria. The risks and potential returns for any particular project classification also varies, based on global, national and local economies. Although this can present risks that appear more complex than traditional investments, the fact that real estate can work independently of Wall Street can provide diversification and profitable opportunities for an experienced investor.



Risks, Rewards and Challenges

As with any type of investment, there are risks and rewards. Real estate has them too, and they can truly follow the old adage “location, location, location”. Foreign investment causing a housing bubble here, the demise of a retail brand vacating shopping malls there. A beautifully rehabbed apartment complex fully leased here and a single family construction sold days after finishing there. Due diligence and luck are a part of real estate, just like any private investment.


The challenge for investors remains: finding real, quality, profitable projects that match their preferences. For an investor's advisor, identifying a quality source of potential opportunities, reinforced with an understanding of what makes a real estate investor tick, can help forge a strong client relationship.




Phil Ayres is CTO of REPSE, a service matching accredited investors with real estate investment projects, for individuals and institutions. Learn more at or contact [email protected]