Are Multifamily Value-Add Opportunities Getting Harder to Find?
Since 2014, value-add properties have been one of the hottest tickets in town, drawing investors who seek to make a profit on class-B properties. Yet the easy pickings are long gone, and now the name of the game is in finding properties that haven't already been upgraded. All this, according to a recent article in National Real Estate Investor (NREI) online For investors looking to find a value-add property, all isn't lost. There are still areas where it's possible and ways to do it.
According to the NREI piece, there are still areas in the country with a sizable rent gap between class-A and class-B properties, meaning that with the right renovations for a class-B property, rent could be raised and still come in well below the class-A apartments. One NREI source says that common areas are a current trend for renovations in value-add projects: by creating an upgraded clubhouse and inviting amenity package, the class-B property will allow for rental growth with a potential investment of around $10,000 as an example.
Yet the hunt for the opportunity to create the value-add goes on as many of the class-B properties have already been either looked through or are already renovated. Finding the perfect combination of an available good deal that hasn't been renovated is becoming harder – but isn't impossible. As always, location matters. According to NREI data, big cities that are densely populated but have diverse transportation are a current good bet: they name Baltimore and Miami, for example. They also recommend looking at markets that might be passed over by other investors – areas that don't typically get a ton of play: here they list both Texas and Oklahoma as doing well in current value-add deals.
The article also points out other factors that investors should consider, like comparable renovated apartments as well as the age/type of the building you're considering. When looking at the age of the building, they point out that buildings dating to the 90s would be easier to host a relatively inexpensive renovation than a dated building from the 70s, for example. When renovating, one source notes that most investors don't go all-in for a full renovation of each unit. They may renovate only a certain percentage, such as a quarter of the units – and as the NREI article notes, then point out the potential to the next buyer.
The long and the short of it is that while multifamily value-add opportunities are getting harder for investors to find, they still exist and it's worth looking at markets others might skip. Once you identify a potential value-add property, compare similar properties for success and make sure that renovations won't break the budget. Value-add is still a great opportunity to improve properties and create rental growth – but patience and research pays off.