Follow these steps to identify the best value add properties for your real estate investment portfolio
The value of the multifamily market in the United States has steadily grown in the past few years with market forecasts expecting the value of the construction of multifamily properties to reach over $118 billion by the end of 2022, up seven billion dollars from the year prior. [1]
Within the multifamily industry, the investment type that has become most popular to purchase is value-add properties—ones that are not operating at their fullest potential, but can be successfully renovated and repositioned to offer a high return on investment (ROI).
Value add has increased in popularity due to the massive amount of investor demand and strong apartment fundamentals that drives deal volume and increases prices in sub-markets across the country like Central Florida and Tampa Bay.
Join us to learn how to identify the best value-add multifamily properties to take advantage of the opportunities for attracting quality tenants, improving tenant retention rates, and generating higher income with this investment type.
Step #1: Consider the current market
The first step in identifying a good value add property is one that you should follow before investing in any type of real estate: properly timing the real estate market.
As an investor, you should purchase a value-added property during a buyer’s market, which means there is greater supply of real estate inventory than demand from your fellow buyers.
A buyer’s market will skew the median sales price downwards, an especially helpful market trait for value-add properties that you have to put more money into for renovations to get a strong ROI than you would a stabilized investment.
Step #2: Think about the tax benefits
As an investor, the tax benefits of adding real estate properties to your portfolio was likely one of the reasons you invested your money into this type of asset in the first place.
When it comes to value-added properties, you should consider your exit strategy can include a 1031 exchange, which allows real estate investors to defer capital gains taxes by using the funds from their previous property to fund the next. Allowing you defer the capital gains taxes and grow your portfolio with the purchase of a larger asset.
If you’re currently an active, self-managing property owner interested in making more passive income, this can be a great strategy for funding your next investment in a value-add multifamily property.
Step #3: Analyze the specific property
Once the market as a whole and tax benefits have been considered, it’s time for you to identify some specific properties you’re interested in purchasing to identify the best possible investment opportunity.
Ask yourself these questions about each property to determine which poses the best value-add opportunity:
- Is the property type in demand?
- Is there a high vacancy rate?
- Are the current rents below the market rate?
- Are properties in the sub-market poised for growth?
- What level of improvements are needed to secure a good ROI?
Step #4: Check how the property fits into your investment portfolio
After you’ve identified the characteristics of the property you’re most interested in, you need to consider how the value-added multifamily asset fits into your investment portfolio.
Every property type draws different investors depending on the amount of risk they can take on in their portfolio. In general, investors who are younger or have the means to withstand potential volatility are the best candidates for value-add property investing since the greater risk offers greater rewards in high potential returns.
Step #5: Work with a reputable multifamily investment advisor
Whether it’s your first property or you’re a seasoned investor, working with a reputable multifamily investment advisor is the best way to identify a strong value add investment for your real estate portfolio.
With unmatched expertise and specific knowledge of the market, a multifamily investment advisor can easily match you with a property that will reach your individualized real estate investment goals. Most advisors always have their eyes on the market, so if nothing is around upon your first point of contact, they’ll know what to look for and contact you when the perfect property hits the market.
Interested in working with our multifamily investment advisors?
At 100Units, we are committed to providing our clients the confidence and peace of mind that comes from working with a group of highly driven and passionate multifamily investment advisors.
We support buyers by providing the insights and support you need to secure the best multifamily investment property for your unique real estate investment goals. Our team analyzes market conditions, trends, and local competition to help you attain the best possible investment for your money.
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Source:
1: Statista | Value of multifamily construction put in place U.S. 2005-2020, with forecasts to 2025