One of Wall Street’s biggest con jobs was convincing us that investments are either for growth or income.
For decades, they’ve hammered home a simple framework: stocks for growth, bonds for income. Mix them together in a 60/40 portfolio and voila…you’ve got the “best of both worlds.”
It’s clean. It’s simple. But it doesn't really apply to real estate.
Real estate doesn’t fit neatly into the stocks-and-bonds, growth-or-income box. There are actually four distinct categories of real estate investments, each with dramatically different risk profiles and return expectations.
The problem? Most passive investors lump all syndications together, asking “Will this make money?” when they should be asking ”How is this deal designed to make money?”
The Four Categories Explained
Think of real estate investments as existing on a spectrum of risk (and returns), from conservative (low) to aggressive (high).
Here’s how they break down:
Core: Like A Boring Bond
Risk: Conservative
Typical Returns: Mid-single digits IRR
Profile: Newer, Class A properties in prime locations
Core properties are the bonds of the real estate world. You don’t buy them for explosive growth – you buy them for predictable cash flow. They’re typically newer properties with minimal capital expenditures, stable tenants, steady income.
As a passive investor, you’ll rarely see these deals. Institutions dominate this space (think insurance companies and family offices), and frankly, the returns aren’t exciting enough for most syndicator-operators to bother with.
Core Plus: Adding Some Spice
Risk: Low to moderate
Typical Returns: High single digits IRR
Profile: Stabilized assets with minor improvement opportunities
Core Plus properties are doing well but have some light value-add opportunities. Maybe the lobby needs updating, the pool needs a refresh, or rents are slightly below market.
These are often former Class A properties that are now 10-20 years old – still nice, but showing their age. The improvements needed are cosmetic, not major surgery.
You also won’t see many of these as a passive investor. The risk-adjusted returns often still aren’t compelling enough for smaller operators.
Value Add: Where Most Syndications Live
Risk: Moderate
Typical Returns: Mid to upper teens IRR
Profile: Clear problems with equally clear solutions
This is where 80% of multifamily syndications exist, and for good reason.
Value-add properties have obvious issues: units that haven’t been renovated in 25 years, owners who haven’t raised rents, deferred maintenance, outdated amenities. The problems are glaring, but so are the solutions.
The magic happens by forcing appreciation through fixing these problems and dramatically increasing net operating income. And a higher NOI equals higher property value, giving both increased cash flow and equity growth.
This is our sweet spot. We look for deals that lean toward the Core Plus side of value-add – stabilized properties that produce cash flow from day one, but with clear opportunities to force appreciation.
Opportunistic: High Risk, High Reward
Risk: Highest
Typical Returns: 18-20%+ IRR
Profile: New development or heavily distressed
New construction and major repositioning deals fall here. The upside can be enormous, but so can the downside. There’s often little to no cash flow in the early years, with all returns coming from a successful exit.
Why This Framework Matters
There are a few takeaways here:
First, real estate gives you something stocks and bonds can’t – the ability to get both growth and income in a single investment. A well-executed value-add deal can provide quarterly cash flow plus significant longer-term appreciation.
You cannot evaluate a development opportunity the same way you’d analyze a Core property. They have completely different risk profiles and should have completely different return expectations.
Continuing that idea, the returns should match the risk of the category. If a sponsor is projecting opportunistic-level returns (20%+) on what they’re calling a value-add deal, dig deeper. Something doesn’t add up.
The Bottom Line
Wall Street’s growth-or-income framework forces you to choose. Want growth? Buy stocks and accept volatility. Want income? Buy bonds and accept low returns.
Real estate works differently. A well-executed value-add deal can deliver consistent cash flow and significant appreciation. You’re not choosing between growth and income anymore.
But only if you understand which category you’re actually looking at. Because not all “real estate deals” are the same.
The four-category framework isn’t just academic theory. It’s a roadmap for matching investments to what you’re actually trying to accomplish.
Know what you want first, then find the deals that deliver it. Because the worst investment isn’t necessarily a bad deal – it’s the wrong deal for your goals.