Why Investing in Value-Add Properties is Ideal

[Justin Goodin]

When done well, value-add strategies benefit all parties involved. Through renovations, the sponsor can provide tenants a more aesthetically pleasing property, with updated appliances and more attractive community space. By doing so, the property becomes more valuable, allowing higher rental rates and increased equity, which makes investors happy too. 

Through property improvements, income is increased, thus also increasing the equity in the deal (remember, commercial properties are valued based on how much income they generate, not on comps, like single-family homes), which allows investors much more control over the investment than in a yield play.

Here is an example of a real value-add strategy. Below are a few pictures of renovated units at One18 Place, a 236-unit asset we closed in March of 2021. We hit the ground running with our value-add strategy by renovating the interiors of the units and were immediately able to begin leasing these units at significantly higher rents, in just a few short months after closing.

No investment is risk-free. However, when something, despite its risks, provides great benefits to the community AND investors, it becomes quite attractive.

Properly leveraging investor capital in a value add investment allows drastic improvements in apartment communities, thereby creating a cleaner, safer places to live and making tenants happier.

Because investors have control over how and when renovations are executed, rather than relying solely on market appreciation, they have more options when it comes to safeguarding capital and maximizing returns.

Sounds like a win-win! What are some unique ways you have added value to your properties in the past?