What Is a Value-Add Property?
In real estate investing, we are focused on one type of property: value-add.
Value-add is the practice of taking a property and increasing its market value – but how? By:
- Updating it
- Increasing the income from it
- 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.
“Value-add” is the opposite of buying a property that is “at retail” or “turn-key.”
What Does a Value-Add Project Look Like?
Here are a few examples of value-add investments:
- A fix and flip investor purchases a run-down house. They complete a rehab to add value and realize a gain or profit from the sell.
- A real estate investor buys a small house in a neighborhood with larger homes around it. They add square footage to the property to bring it up to the local market. Selling or renting this now larger property creates profits for the real estate investor.
- A land developer takes a large tract of land and subdivides it into smaller home sites. The smaller lot sales will be bigger than just selling one large lot.
- A real estate investor buys an 8-plex that is currently only at a fraction of the market rents. They increase the rent, creating both more cash flow and a higher valuation of the property.
As you can see by these examples, in the world of value-add properties, you create profit and cash flow.
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