Value-add properties and investment offer benefits of revenue and value enhancement potentials among multi-residential investors. “Value add investors seek to generate heightened yields by harvesting untapped revenue potential or creating value through property upgrades. Although the premise has been around for ages, value-add investment is sweeping the multifamily markets,” (Brad Capas, CCIM, 2021).
Value-add investment can be referred to as a combination of art and science. A successful value-add investment requires levels of strategy and creativity to reveal an asset’s potential to properly carry out an enhancement program that will maximize results. Multi-residential properties offer a range of opportunities that vary by property
and market, however, there are three primary categories that value-add investment can be categorized as. This includes operational enhancement opportunities, capital improvements and total repositioning.
Operational enhancement opportunities:
This is most common in under-managed properties and almost always requires little capital investment. i.e., raising rents to market levels and initiating income policies such as, parking fees, late fees and reducing expense
Capital improvements:
These improvements enhance the attractiveness and revenue potential of a property. Often consisting of interior upgrades, an example would be kitchen and bathroom upgrades to an older living space.
Total repositioning:
This concerns the community’s marketability with appealing to more affluent residents. Total repositioning often combines both operational enhancements and capital improvements.
A successful value-add investment is dependent on their property enhancement programs. Triumphant value-add strategies draw a balance between cost and reward, which is then measured by return on investment.
Value-add investment strategy is a compelling concept. As properties continue to age and markets shift, more opportunities will arise. Lately, value-add investors have been profiting from increases in rent and low-interest rates. Looking ahead, as markets and interest rates begin to balance out, the success of value-add investment, “will become increasingly dependent on investors’ market awareness, ability to adapt, and adherence to a disciplined strategic plan,” (Brad Capas, CCIM, 2021).
For more information about value-add investment, read this article by CCIM Institute.
https://www.ccim.com/cire-magazine/articles/2016/11/value-add-investment/
