Safe investments: property as stable wealth building

Safe investments are characterised by predictability and capital preservation. Property offers these qualities through its tangible nature and stable cash flow.

Characteristics of safe property investments

Property differs from other asset classes due to its physical presence. This tangible certainty forms a fundamental distinction from financial instruments.

Investing safely in property with returns requires a balance between risk and yield. Solid locations, creditworthy tenants and conservative financing form the foundation. These factors determine the stability of returns.

Risks of property investment

The risks of investing in real estate are identifiable and measurable. Vacancy is the primary risk, as a vacant property generates no income while costs continue. Long-term leases with creditworthy parties reduce this risk.

Market value fluctuations influence real estate valuations, though they are less volatile than stock prices. Location and building quality largely determine value risk. Maintenance costs are a structural expense, and it is common to reserve a fixed percentage of the asset’s value for this purpose.

Interest rate risk arises especially with short-term loans and high loan-to-value ratios. Rising interest rates and reduced refinancing capacity can pressure cash flows and equity positions.

Investing in property: risks and returns

Risk management determines the ultimate return. Diversification across locations, property types, operators and tenants reduces concentration risk. A well-diversified portfolio can absorb local setbacks.

Due diligence prevents costly mistakes. Thorough investigation of location, building, tenant and market includes analysis of historical data, technical inspections and legal review of contracts. Conservative projections with lower rent growth and higher costs than expected create buffers.

Structural benefits of property

Property has a low correlation with stock markets, offering diversification benefits within broader portfolios. This trait helps stabilise total returns during market volatility.

Inflation protection is inherent in property as rents are typically indexed, while mortgages are often fixed in nominal terms. In operational property with turnover-linked contracts, price increases are reflected directly in income. 

Property categories and risk profiles

• Core property includes prime locations with long leases to strong tenants. This category offers the highest stability with moderate returns.

• Core-plus includes shorter leases or secondary locations with potential for value enhancement through active management.

• Value-add and opportunistic property require substantial expertise for redevelopment or repositioning. Returns and risks are proportionally higher.

Commercial operational real estate

In operational real estate, the property itself serves as the primary income source for the business. Think of car parks earning from parking transactions or hotels from overnight stays. This distinguishes it from traditional commercial property like offices, where tenants generate revenue elsewhere.

Contract structures range from lease agreements (operator bears risk) to management agreements (owner bears risk). Fixed lease agreements with specialised operators provide predictable cash flows, making this category suitable for risk-averse investors seeking stability.

Operational property such as car parks combines stability with return potential. Its operational nature deters speculative interest, leading to more stable valuations.

Essential infrastructure has structural demand. City centre car parks meet fundamental mobility needs. Long-term contracts with specialised operators reduce operational risks.

Access through Orange IM funds

Property funds offer structural advantages for safe investing with attractive returns. Professional fund managers identify and manage risks through specialist knowledge and economies of scale.

Immediate diversification reduces concentration risk. Orange IM applies strict investment criteria, conservative financing standards and long-term lease agreements with proven operators. Our property funds, including the Orange IM Parking Fund I, offer access to unique investment opportunities with attractive returns.

Frequently asked questions

• What are the main risks in property investment?

  Vacancy, depreciation and maintenance costs are the primary risks. These can be managed through location selection, tenant/operator quality and financing strategy.

• How does property compare to other asset classes?

  Property shows lower volatility than equities and has more stable valuations. Tangible value and continuous (rental) income provide buffer capacity.