Using our income approach analysis we look for longterm real estate investments that can assure a steady income pattern and growth. Some of the basic factors we consider in our analysis:
i) Tenant demand – the level of demand directly affects the level of income and growth we are able to derive from property investments. There are a number of factor we have already identified to assess the level of demand in a particular area.
ii) Areas – we only invest in areas that we are extremely familiar with and fully comprehend dynamics due to the longterm nature of property assets. Choosing the correct area to acquire a property asset is not an easy task and requires detailed analysis, research and patience. Once invested there is not much one can do to change the area surrounding the property asset, hence the importance of careful evaluation.
iii) Leverage – use of appropriate amount of leverage is a key consideration when we invest in property assets. Structuring the deal correctly with the correct debt-equity ratio can impact on the overall return achieved from a property asset. Needless to say this is an important consideration which can be easily misunderstood or miscalculated.
These are just some basic factors we consider before making a direct investment into residential property. Due to the illiquid nature of residential property assets, the high entry and exit costs, taking anything other than a longterm investment view is usually detrimental. Hence we conduct a thorough due diligence analysis before committing to investing in any Property deal and we do not overextend our weight in this sector.
At “MSC Investments” we also invest in Listed Real Estate Companies as these provide a number of exciting investment options for us and allow us to invest in commercial properties we would otherwise never have access to. For these sort of investments we take a medium term view and as such these types of investments provide a lot of advantages in enhancing our investment portfolio.
i) Liquidity – such listed investments provide us with an asset that is usually illiquid in nature, but due to the holding Property Companies being listed, we can enter and exit positions at will and reduced costs via equity trades. This also allows us to have access and a share of high quality properties and blue chip tenants.
ii) Vacancy rates – the blue chip listed property companies contain assets that are generally well managed with a key focus on reduction of vacancy rates which ensures the assets provide a good steady return on investment. This income approach sits well with our income based investment style.
iii) Tenants – when we analyse some of the Listed Property Companies, the ones that have a large percentage of blue chip tenants tend to provide good returns over longer term periods. As these tenants are Companies as well, they tend to sign long-term leases which guarantee rental returns for longer periods than residential properties.
iv) Analysis – we analyse and monitor the yields and TERs of all these listed Property Companies to ensure we are able to invest in ones that gives us the best returns over the medium term. Our Analysis is usually financial and a statistical fit for our entire Portfolio.