Investar USA: Multifamily Renovations & the Value-Add Approach

As a real estate investor, you’re naturally eager to achieve strong financial yields when you own a multifamily property. And you’re not alone. Many investors specifically look for properties where they’ll be able to increase the rents, also known as value-add properties. Here’s a look at what the value-add approach involves in real estate investing, according to Investar USA.

At the moment, apartment building rents are not growing very quickly, and this has sparked a real estate price growth slowdown. Fortunately, though, you as an investor can still secure value-add properties -- properties where renovations totaling $5,000, for example, can justify higher rent amounts.

If you’re interested in purchasing a value-add property, you may notice in your search that the greatest demand for these types of properties exists for less expensive, older apartment buildings. Why? Because even if investors increase the rents in these types of properties, the rents will still be a lot lower than those associated with brand-new apartment buildings. Older apartment buildings in suburban areas surrounding growing cities are especially popular to value-add real estate investors.
However, some investors in multifamily properties are locating buildings to purchase and remodel in neighborhoods that are being gentrified near thriving downtown areas. In these particular markets, rents are on the rise with the spread of luxury apartment construction.

An example of the type of market mentioned above is the metro area of New York, which currently has more than 20,000 apartment units being newly constructed in urban areas on the periphery of the city, such as Queens, the southwest area of Brooklyn, New Jersey, and the Bronx. This 20,000-plus number is far larger than the estimated 5,000 units that are currently being constructed in the core part of the city.

Investors are clearly spending big money on value-add properties these days. So, if you’re interested in strengthening your bottom line this year, now couldn’t be a better time to try to make the value-add approach work for you as well.

Investar USA: Add Single-Family Homes to Multifamily Portfolio

Your real estate investment portfolio may be filled with multifamily homes -- and for good reason. These properties generally offer an excellent bang for your buck, with money flowing in from multiple tenants versus just one. However, there’s still room in your portfolio for single-family homes, according to Investar USA. Why? Let’s take a peek at the advantages of adding a single-family home to your multifamily rental portfolio this year.

As a general rule of thumb, single-family homes are easier to maintain than multifamily buildings are. This makes them extremely attractive to landlords who have no intention of employing property managers. After all, the older you get, and the wealthier you become, the more you want to minimize your staffing overhead.

On top of this, single-family homes may offer higher returns than multifamily homes in your area. According to investors, a major advantage of a multifamily building is that it offers economies of scale, or the lower per-unit costs enjoyed by larger entities. However, in some situations, you may find a single-unit property that provides you with a much better return than a multifamily property would. After all, the latter still comes with more expenses, features higher turnover, and demands more management.

Also, note that a multifamily property’s value depends on the property’s generated income. However, a single-family home’s value isn’t based on the income generated; instead, it’s based on what a buyer is willing to pay for it. This means that if you find a real estate market featuring higher rents compared with home values, you could generate more money with a single-family home than you would with a multifamily property.

The overall lesson here for real estate investors? Don’t discount the power and value of a single-family home in today’s rental market.