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.