Investopedia: the investors guide to finding a diamond in the rough.

• Author: Coon, John

A few years after the end of the Great Recession, the investment landscape is still tricky. The stock market continues to be volatile, while bonds post a skimpy 1-1.5 percent rate of return. But real estate remains a stellar portfolio asset, and that has investors clambering for attractive opportunities.

In fact, a typical core asset--an existing structure that needs no improvements before renting or leasing--can bring respectable returns of about 5 or 6 percent. For a retiree looking to bolster a retirement fund, core assets can provide a stable, predictable cash flow.

Others assets carry higher upfront risks with the potential of greater returns. These value-added assets often need to undergo some sort of major renovation or improvement before renting or leasing. But the risk can pay off in the form of a higher annual return. Some value-added properties can offer returns as high as 20 percent.

In an improving economy, investor demand for value-added assets has intensified. In primary markets, like New York, Los Angeles and Chicago, these kinds of assets have become scarce, pushing investors into secondary markets like Seattle, Salt Lake and Denver. But great opportunities exist in these markets for savvy investors. The trick is finding those assets and knowing how to maximize their potential.

GOING STRONG

Rawley Nielsen, president of investment sales with CBC Advisors, sums up the current real estate investment market in one word: "Insane."

Nielsen says the market shows strong activity in every product type and along every spectrum, from stable core assets to riskier value-added plays. "We're now above where we were in 2006-2007," he says.

The real estate investment market, overall, is offering historic-low cap rates, according to Mary Street, associate broker, land and investments, with CBC Advisors. In the late 1990s, she says, most investments were priced at a cap rate of 10 percent. "Prior to the recession, we saw cap rates drop to an average of 8 to 8.5 percent. During the recession, in some sectors we saw dramatic increases as a reflection of increased risk caused by vacancy and market uncertainty."

Beginning in 2012, cap rates began to compress downward again. Now, for example, cap rates for multi-family properties are at historic lows, typically between 4.5 and 6 percent.

"We have a lot of investors seeking small apartment communities, as those are still considered safe, stable investments," says Street. Small office buildings and...