Turnkey or value add?

[Matt Nettles]

I am still somewhat new to the MF world..

I’ve been presented an opportunity to purchase a built in 2000 well established 28 unit complex with 100% occupancy, waiting list, the whole 9 yards... however there is a small value add with rents being below market.

I ask because since I began to learn the ropes of MF, I’ve seen nothing but value add to be the best option, that’s what I seem to understand the most, and this doesn’t seem to be a great value add deal.

Wanted to get some expert or more knowledgeable

Opinions on the potential and maybe pros/cons to both strategies

Any help would be greatly appreciated

[Ben Leybovich]

Thanks for the ping, @Danny Randazzo.

Let's think of this argument in the following way. There are 2 types of investors. One kind of investor generates a lot of wealth in another business, and he/she uses real estate as a vehicle to preserve said wealth. This investor is more interested in the passivity of investing, tax benefits, and stability of revenues.

The other kind of investor makes real estate itself the business that generates wealth. This investor is not merely interested in storing wealth; he/she needs to create wealth.

If you are in the first group, then conceivably you can do TK. Put your money into a high quality, stable building in a Class A market, and your kids will have something of value when you're gone. 

However, if real estate is your ticket to wealth, if this is how you intend to create wealth, then you need value-add.

Hope this makes sense.