Passive investing can reduce the amount of day-to-day work involved in owning real estate, but it should not mean investing without understanding the opportunity.

Before committing capital, investors should evaluate both the investment itself and the people responsible for executing it.

At Lokahi Capital, several areas are particularly important when reviewing an opportunity.

The Operator

A strong business plan is only as valuable as the team responsible for executing it.

We look closely at an operator's experience, track record, reputation, local market knowledge, and ability to navigate challenges.

The Underwriting

Real estate projections depend on assumptions.

Rent growth, expenses, financing costs, occupancy, renovation budgets, and the eventual sale of a property can all affect performance.

Thoughtful underwriting should be based on supportable assumptions rather than depending entirely on an optimistic scenario.

The Path to Value Creation

There should be a clear reason an investment has the potential to become more valuable over time.

That might involve improving operations, renovating units, developing a property, increasing occupancy, repositioning an asset, or another well-defined business strategy.

The important question is: Where is the value expected to come from?

Alignment

It is also important to understand how the interests of the operator and investors are aligned.

Fee structures, the operator's own capital commitment, and how profits are distributed can all help investors understand the incentives behind an opportunity.