Creating value through property investment
Returns from property come from direct rental or operational income and long-term capital growth. This combination makes property a widely used asset class.
Fundamentals of property returns
Property generates returns via two routes. Direct cash flow comes from rental income minus costs such as mortgage interest, maintenance, management and taxes. Indirect capital growth is realised upon sale of the asset.
The combination of these two elements characterises property investments. Cash flow provides immediate income, while value growth increases wealth. This dual return structure sets property apart from other investment categories.Leverage significantly affects property returns. With partial financing, the investor controls the entire asset with limited own capital. Value fluctuations impact the total asset value, not just the equity. This leverage works both ways—upwards and downwards.
Cash flow from property
Positive cash flow occurs when rental income consistently exceeds all expenses. The surplus forms monthly cash flow available for distribution or reinvestment.
In operational real estate, the building itself generates business income, rather than merely serving as a location for external activities. Car parks earn revenue from on-site transactions, hotels from overnight stays in the property. Office tenants, by contrast, generate their turnover partly outside the premises.
Depending on the contract type, factors such as contract duration, tenant quality and operational performance determine the stability of cash flows. For example: a car park with a long-term lease to a reputable operator offers more predictable cash flow than flexible rental to rotating tenants. One is not necessarily better than the other.
Building wealth through property
Wealth growth in property occurs through debt reduction and capital appreciation. Monthly mortgage repayments lower the debt position while the asset may increase in value. Over time, this process builds substantial equity. Portfolio composition often affects the growth pace. Diversification across locations, sectors and tenants reduces concentration risk. Systematic reinvestment of cash flow accelerates wealth building through the compounding effect.
Investment Strategies
Buy-and-hold involves holding property long-term for stable rental income and (steady) capital appreciation. This strategy requires limited time investment post-acquisition.
Value-add focuses on increasing value through improvements and/or expansion. Enhancements can involve operations, the building itself and/or marketing.
Development transforms land or outdated real estate. This requires specialist knowledge, network and capital. The risk profile is higher.
Operational property
Operational real estate links asset value directly to business performance. Professional operations often generate higher cash flows and create more value.The operational nature is not appreciated by all, which creates acquisition opportunities but also increases volatility in operations.
Lease agreements are less volatile, partly inflation-protected and easier to forecast. When rent includes a turnover component, it can offer additional income and thus higher returns.
Access through Orange IM
Direct property requires substantial investment and concentrates risks. Orange IM offers access to institutional-grade operational property via funds, with professional management and built-in diversification.
The Orange IM Parking Fund I illustrates this approach with the Sint Jorisplein Car Park in Amersfoort, leased to Q-Park. The fund manages all aspects from acquisition to disposal. Participants receive quarterly payouts and benefit from capital growth—without operational involvement.
