What are different asset classes within real estate?

We have three broad asset classes within real estate with several sub-classes under each asset class. The three major asset classes include residential homes with sub-classes such as single family homes, town homes, and multi-family apartments; commercial buildings with sub-classes such as office, retail, and industrial; and agricultural lands. Until a land is converted for use into either residential or commercial, every land by default, is an agricultural land. Within agricultural land, sub-classes are based on extent of land or size in acres. Classification based on size makes sense because, the larger the size of raw land, the more can be its future uses.

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What is the Risk Reward Profile of Real Estate Investment?

Real estate offers one of the safest investment alternatives. Depending on the asset class, the risk is often minimal to moderate. In view of the minimal risk associated, real estate investment offers moderate rewards. Having said this, for people with higher risk appetite, there are opportunities for speculative investment within real estate. Speculative real estate investments carry high risk with a potential for high return.

Liquidity: Real estate investments carry liquidity risk. They are not as liquid as bank deposits are precious metals. In view of this higher liquidity risk, real estate offers higher return than a term deposit with a bank.

Speculative Risk: Real estate is more stable than stock market. Real estate investment is not as risky and speculative as investment in stocks. In view of this, return on investment on real estate could be lower than that from stocks, especially as compared to performance of stock markets during a bull run.

Bank deposits and AAA bonds offer a yield of around 3% and stock markets during best of times offer a return of 18 or 19%. Logically speaking, return on real estate investments should vary between 5-18%. Within this range, the higher the risk, the greater would be the return.

Within real estate there several classes. Safest investments offer between 4-6 %. The riskiest investments could offer a return as high as 15-16%. Again the returns are over a medium investment term of 15 to 20 years. If any investment is offering more than 15% returns then it is a little too good to believe or the inherent risk could be very high. On the same token, if a real estate investment offers return less than 5% then such an investment is not worth the consideration or time.

Elaborate market data, sophisticated analytical tools, public domain information, and stringent regulations governing the real estate sale and purchase, offer every investor an equal opportunity to make informed decisions from among a plethora of publicly available choices. Information available is same across all individuals, only differentiator being the extent to which an individual makes use of such publicly available information to their best advantage.

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Hence, most times office condominiums are built for sale, and use by owner occupants. For more information contact Sri Chaluvadi at (626) 372 9395 or Email:

Why are you building office condominiums as “For Sale” projects? Why is it that you are not leasing your office condominium projects?

Generally speaking, office condominiums are occupied by service providers such as doctors, CPAs, attorneys, title companies, insurance agents, and realtors. Businesses in the service industry have the below general characteristics:

  • Not very working-capital intensive
  • Real estate is the major cost
  • Purchase of real estate is the best use of funds
  • Usually owner occupied
  • Banks are too willing to lend business owners for owner occupied buildings
  • In most cases, mortgage payment is less than rent paid

In view of the above, business owners will always prefer to own their real estate as against renting.

On the other hand, developers of office condominiums prefer to sell than lease for below reasons:

  • Lease terms are usually shorter than those applicable for commercial retail spaces
  • Even if leased, tenant turnover is high
  • Tenant if successful, will always look to own their office and move out
  • Tenant if unsuccessful, will vacate – vacancies will generally drive the business down for other occupants as well, leading to more vacancies.

Hence, most times office condominiums are built for sale, and use by owner occupants. For more information contact Sri Chaluvadi at (626) 372 9395 or Email:

Why are your retail buildings available for lease only? Why is it that an investor cannot buy a single store in a strip center?

Retail businesses are working-capital intensive. For a growing business, capital is always a constraint. Also if capital is available, the owner would want to expand to newer locations. For this reason, a retail business owner is always seeking to conserve capital. They would not like to deploy their precious capital into real estate.

On the other hand, retail leases generally run for longer terms, in excess of 5 years. Tenants have a lot of investment in storefront finish out. In view of the significant equity and also due to the nature of business, retail tenants are generally stable. Once leased, risk of vacancy and occupancy losses is lower. In view of the long term lease, it is easy for the developer to get bank financing and cash out. Also, cash-out through financing has tax advantages as compared to cash-out through sale.

For reasons above, generally speaking retail buildings are available for lease. They are generally purchased by investors. Retail stores are normally non-owner or tenant occupied. For more information contact Sri Chaluvadi at (626) 372 9395 Email:

What is Real Estate Syndication?

Real estate syndication is a means for a group of investors to pool their capital for purchase of real estate. This approach provides the much needed diversification to investors because an investor can spread their risk across multiple investments. Thus real estate syndication reduces and distributes risk.

Also, investors get the opportunities to participate in larger deals with lesser capital. Because of the size of deal, in most cases, investors wouldn’t be able participate on their own. Syndication provides investors ability to invest in larger deals. Generally speaking, the larger the deal, the more are entry barriers, and hence the higher is the profitability.

In Syndicated real estate deals, the syndicator would be able to find quality deals; add value through their experience; manage the partnership; and leverage the investment at best terms. Syndication is therefore a smart way to invest in real estate. We are currently leading several syndicated partnerships.

For more information contact Sri Chaluvadi at (626) 372 9395 or Email:

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