Investing in real estate is not just about buying a home, hoping for positive cash flow from the monthly rent, and expecting to sell it for a good profit in the future. Property owners can increase the equity in their multi-family homes or single-family homes significantly through strategic renovations to amenities. These are the strategies that make up value add real estate investing.
What Is Value Add Real Estate?
Value add real estate definition: Value add real estate is property that requires some improvements in order to increase its value.
Such investment properties can be rundown due to the owners lacking the finances to make improvements or just sheer neglect. Investors can buy such distressed or value add properties at a price below market value and make structural, physical, and operational improvements. This will help attract new tenants, reduce vacancy rates, and generate higher rents.
How to Find Value Add Real Estate
Though there are numerous distressed rental properties out there, it might not be easy to find the right one for you. Here are some great tips for finding cheap real estate:
- Join real estate investment groups – Many neighborhoods have local investment groups that converge frequently to offer networking and educational opportunities to their members. Quite often, they will also have property listings in their monthly newsletters or websites. NationalReia.org is a great place to find investing groups in different states.
- Find listings on the internet – There are numerous lists online that contain short sales, foreclosures and value add real estate. While some of these lists are free, others require a small fee for access.
A good example is the Mashvisor Property Marketplace which allows you to sort your lists by zip code, town, and city. You can also use filters such as budget, rental strategy (traditional or Airbnb), number of bathrooms and bedrooms.
Visit the Property Marketplace today to find foreclosures, short sale properties, bank owned homes, and auctioned properties that can be used for your value add investment strategy.
- Connect with a wholesaler – Wholesalers are people that find buyers for value add real estate on behalf of property owners. Most of these people are well-connected with sellers and agents in certain neighborhoods.
- Drive around the target neighborhood – You could simply drive around the area where you want to buy property and look for potential investments. Look out for homes that show signs of deferred maintenance or neglect. Reach out to the owner via telephone or email and make an offer.
Once you’ve found what you are looking for, here is how to add value to property:
6 Ways to Add Value to a Residential Property
While the updates and renovations you make will depend on the residential real estate property you buy, there are some changes that are better for increasing value. Here are 6 to consider:
1. Update the Central Heating System
While some old houses don’t have central heating, others have outdated systems that need to be upgraded. Upgrading or adding the central heating system is a great way of adding value to a rental property. While improving the heating system, you should also find ways of enhancing the overall energy efficiency of the home. This can be done in the following ways:
- Replacing damaged windows with double glazing
- Adding insulation to the loft space
- Sealing drafts around windows and doors
Related: 11 Home Renovation Tips to Increase the Value of Your Investment Property
2. Convert the Garage into a Living Space
If there is another space for parking a car, consider converting the garage into a living space. The first thing you need to do is ascertain whether the garage is ideal for conversion and if any planning permission is required. Quite often, the work involved in garage conversions will be classified under permitted development. However, it would still be wise to confirm with the local planning authority. During the conversion process, hire an approved independent professional inspector to check if crucial areas such as the roof, electrical wiring, walls, and drainage comply with regulations.
3. Improve the Curb Appeal
When trying to attract home buyers or tenants, first impressions are very important. Most people decide whether or not they like a property even before they step inside the door. An unattractive or poor exterior will create a bad impression and drive away potential renters or real estate investors.
Improving the curb appeal as part of your value add real estate strategy could involve any of the following:
- Repainting windows and doors
- Repairing/changing windows
- Replacing an old garage door
- Repainting walls
- Removing stone cladding
- Repairing broken or cracked cladding such as timber or render
- Adding a porch
- Adding/replacing a house number or sign
- Adding climbing plants
It should be noted that such exterior makeovers may need planning permission from the local authority.
Related: Outdoor Features That Will Make Your Investment Property More Valuable
4. Create More Storage Space
Storage is a major selling point that can significantly increase the value of your real estate. Take advantage of every bit of spare space, and either fit doors to create cupboards or build shelves. Look for:
- Dead space at the end of corridors
- Space under the stairs
- Concealed nooks in corridors
- Space in the attic or cellar that can be upgraded
- Space alongside cisterns or beneath the bath
- Unused wall space for mounted cupboards
- Space above sinks
5. Makeover Your Garden
Another great way of implementing the value add real estate strategy is by redesigning your garden. This could involve any of the following:
- Adding/raising boundary fences for enhanced privacy
- Creating distinct sections for different functions e.g. storage, barbecue/eating, and seating
- Cleaning up and getting rid of dead plants and litter
- Watering and mowing the lawn
- Creating interesting shapes with borders and beds
- Cutting back overgrown shrubs and trees
- Adding interest and color with flowers
6. Update Old Wiring and Plumbing
Updating plumbing and wiring is a very disruptive affair and will involve chasing out plaster walls or lifting floors. It is therefore very important to finish these tasks before making any other modification to your value add real estate.
Updating the electrical wiring could be important if the investment property hasn’t been rewired for several years. If the home has an old fuse box, remove it and install a modern consumer unit. Using attractive faceplates for your switches and sockets will also add to the value of your property. When rewiring, use the opportunity to add recessed lighting in different rooms.
Old pipework in a home can produce rattling or knocking sounds, cause poor cold or hot flow and result in burst pipes. Be sure to replace all the old and rusty pipes with new rust-proof ones. You should also replace gravity-fed plumbing systems with the modern pressurized version. This will free up space by eliminating the need for a header tank.
Related: Home Renovation: A Guide for Fixer-Upper Investments
Conclusion
The value add real estate strategy is one of the best real estate investment strategies for experienced or beginner real estate investors. It provides an increasing cash flow through rental income and a good return on investment upon sale.