What is a value-add property?

In real estate investing we are focused on one type of property and that is value-add.

 

Value-add is the practice of taking a property and increasing the market value of that property by:

  1. updating it

  2. increasing the income from it

  3. changing the use of it.

Typically, you will increase the value by more than what you put into it, thus creating a profit for you.

 

This is opposite of buying a property that is at retail or turn-key.

 

Here are a few examples of value-add investments:

  1. A fix and flip investor can purchase a run-down house and complete a rehab to add value and realize a gain or profit from the sell.
  2. A real estate investor can buy a small house in a neighborhood with larger homes around it and add square footage to the property to bring it up the local market. Creating profits for the real estate investor.
  3. A land developer can take a large tract of land and subdivide it into smaller home sites. The smaller lot sales will be larger than just selling one large lot.
  4. A real estate investor may buy a 8-plex that is currently only at a fraction of the market rents and increase them. Creating more cash flow and a higher valuation of the property.

As you can see by these examples the world of value-add properties is where the profits are and where cash flow is created.

 

 

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