I started investing in real estate in late 2008 utilizing the typical investment strategies associated with buying discounted and/or distressed assets that were either short sales, lender owned or seller liquidations. It has taken me over four years to realize that you could invest in real estate at its current market value and still make an additional 20%+ growth in asset value over an investment holding period! “Real Estate Value Add Investing” is the way to do it and I will share some of my strategies and ideas over the course of the next four articles.
Real Estate Value Add investing is a proposition wherein you buy properties at or below market value and still increase their value by 20% or more utilizing value add improvement centers that the seller was not able to tap. The key formula to remember when executing value add strategies is as follows:
Feasible Strategy = Value Add Increase > Cost to Make the Increase Happen
Hence it is important that that the value of the increase you seek either costs nothing or the cost is smaller than the resulting value increase for the strategy to be feasible value add strategy.
How to Find Value Add Centers in a Property?
Every property has changeable and unchangeable characteristics. As a value-add investor you want to find properties with good unchangeables i.e. location, lot size and easily rectifiable changeable characteristics. My list of changeable real estate value centers is as follows (this is not comprehensive and there are other value add centers; if you have any other centers please leave them in the comments below):
- Rental Income Quality and Sources
- Expense Sources & Relative Costs
- Load Factors of a building
- Barrier to Entry laws such as rent control, zoning and environmental
- Highest and Best Use Mismatch
Over the course of the next few articles, I will go …read more