How could value add opportunities alleviate the current market uncertainty and boost future returns for real estate investors?

Dana on May 9, 2022

How could value add opportunities alleviate the current market uncertainty and boost future returns for real estate investors?

 

Global political friction, heightened inflation, and monetary tightening are the key issues that real estate investors are closely monitoring in 2022.

The monetary tightening is expected to bring inflation under control, but the significant supply shortages in the multifamily market, particularly in the Sun Belt region should very likely enable real estate investors to continue enjoying future capital and cash flow appreciation in the years to come.

History has shown that even during the most uncertain times, savvy investors are successfully weathering such periods by undertaking investment strategies that require extra work, investment, and execution capability, but are richly rewarded at the end of the process.

How can real estate investors put their capital to work and maximize their returns in such market dynamics?

Inflationary pressures are causing the Fed to take a hawkish approach and commit to a monetary policy tightening in the following months. Supply chain challenges, energy growing commodity costs and rising energy demand, contribute to the heightened inflation, but the latter two factors are expected to considerably alleviate their pressure on future inflation readings by the end of this year that would increase the likelihood for the Fed to slow down its monetary tightening schedule.

When it comes to the first factor, savvy real estate investors that are always looking for attractive opportunities to maximize their returns can find hidden gems in value-add multifamily projects, particularly in the Sun Belt region, where due to a combination of various market and demographic shifts, demand is booming and expected to do so in the years to come. Although these projects come with the need of extra work, real estate investors who are willing to go the extra mile and deal with such attractive opportunities can enjoy immense future capital and consistent, long-term cash flow appreciation.

When compared to other popular investment classes, investing in promising value-add multifamily opportunities comes with multiple tax advantages. Real estate investors can deduct the costs of upkeep, day-to-day repairs, utilities, and other incurred expenses and a property depreciation schedule allows them to claim a variety of tax benefits. Moreover, a cost segregation study might help boost future cash flows and decrease the tax liability for real estate investors planning to build, acquire or renovate a building, or have done so in the near past.

With the rising property prices, value-add multifamily opportunities are growing in popularity because of their potential for their immense risk-reward potential. Real estate investors taking on such projects, installing new appliances, making valuable property renovations, and relevant amenity upgrades can enjoy significant maintenance savings and accelerate their future returns.

With ongoing shifting preferences by baby boomers, millennials and Gen Z, real estate investors that will take on promising value-add projects enriched with relevant amenities in high demand by the key local demographic target groups, could provide investors with a distinct competitive advantage in attracting and keeping renters with higher purchasing power that will enable them to enjoy attractive returns, and cash flow appreciation in the years to come.

Rebranding and painting a building may make a big difference. A property’s long-held perception can be easily transformed by simply repainting or replacing the facade, which can attract a whole new market or tap into an existing market looking for some modern touches. New landscape design, security gates, fences, covered or gated parking will add significant value to your multifamily property.

Paint is one of the most cost-effective components of any value-add project and may significantly improve the image of your multifamily property. Having an appealing flooring, whether it is carpet, tile, wood, or laminate, helps embellish the interior of your units. Moreover, if your budget allows, updating your kitchen or bathrooms will be an excellent way to increase your multifamily property’s value.

When all of these amenities are included as a standard for your tenants, the probability of lease renewals rises, and this demand allows for future consistent rent significantly increases.

Value-adds are excellent opportunities for investors to use their real estate skills and collaborate with an experienced general contractor to achieve higher returns. However, when it comes to property renovations, real estate investors frequently overlook the importance of having the right strategic partner.

Real estate investors are aware that the selection of a trusted and experienced general contractor with proven nationwide track record that can execute the entire project without construction or loss-to-lease risk is the most important aspect in meeting your project KPIs, maximizing your ROI and future cash flows when it comes to value-add projects.

 

Ready to start your next investment project?

Please contact us to learn how we can best help you to turn your next investment project into a success.

Email: [email protected]

Telephone: (954) 570-0300

Address: 850 SE 7th Street, Deerfield Beach FL 33441

About Adivo Construction

We are a national general contractor with over 50 years of combined construction expertise specializing in the value-add improvements of apartment communities.

Our mission is to assist our clients in finding the right balance between capital expenditure and appreciation potential by designing and executing customized renovation programs that are focused on increasing cash flow return and overall return on investment.

We have completed over 100 repositioning projects for publicly traded and privately held domestic and foreign companies in states such as Florida, Texas, Kentucky, Oklahoma, Georgia, South Carolina, Utah, North Carolina, Tennessee, Indiana, Michigan, Missouri, Arkansas, Ohio, Arizona, Nebraska, and Kansas.

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