What Is A Value Add Property?

There are several classes of investment property opportunity and strategy that investors either focus on or diversify their portfolios with. ‘Core’ investments tend to be the most conservative and lowest yielding, but also provide the most predictable cash flow from the start. Opportunistic and speculative investments are high risk and require the most work. Value add properties offer higher returns than core products but offer more security and value creation to investors in the short term.

What are Value Add Properties?

In multifamily real estate investing a value add property is typically one which is underperforming. This may be due to age, management, deferred maintenance or the failure of the previous owner. Or it could just be an untapped opportunity to increase value based on the market now.

These properties can be acquired, improved, and then held for cash flow. Or they may eventually be resold for a large gain.

Ways to Add Value

There are a variety of ways to add value to a multifamily property, including the following.

1. Property Performance

One of the easiest ways for experienced teams to add value to a property is simply through elevating income and minimizing expenses.

This can be accomplished through:

• Better marketing and positioning
• Raising rents
• Filling vacant units
• Eliminating waste
• More efficient management

2. Physical Improvements

General renovations and rehabbing is a common way to add value.

This can include:

• Resolving deferred maintenance issues
• Energy efficient, technology and cosmetic upgrades
• Signage
• Creation of a model unit

3. Adding Income Sources

Savvy apartment investors know that income isn’t just limited to the current number of units.

Additional revenue streams can be gained through:

• Adding commercial space and tenants
• Placing pads for new buildings
• Expanding unit count with new construction, add-ons, or reconfiguring units
• Improving the use of space
• Eliminating wasted common space, i.e. parking and mechanical areas
• Laundry
• Amenities

Summary

A value add property is one which is ripe for adding value and enhancing profitability. This can result in great short term equity gains and large ongoing cash flow gains. An experienced team can still find plenty of these value add opportunities in the market with the right relationships.