How To Achieve Attractive Returns While Minimizing The Construction Risk By Putting Your Money To Work In Promising Value-Add Projects?

Dana on March 22, 2022

How To Achieve Attractive Returns While Minimizing The Construction Risk By Putting Your Money To Work In Promising Value-Add Projects?


Real estate has proven to be one of the best investment classes in history. It enables investors to enjoy attractive returns while also providing capital stability and steady cash flows.


However, even among the various real estate legs there are major factors that differentiate market average, above market average and outstanding returns.


Investors that are always thinking ahead of what will happen in the market or become creative with their investment style by taking advantage of hidden gems or underutilized value add properties that can be turned into diamonds, usually enjoy the best returns.


How could investors position themselves accordingly and enjoy such outstanding returns?


Why value add properties might be your best investment choice?

Value add properties are properties that need corrective action from a smart investor with the right vision to realize the full potential of the property.


These properties could be underperforming for number of factors ranging from capital intensive-labor requirements, poor management, reduced demand from renters for what the property has to offer, outdated amenities, or many other issues.


The best strategy that investors can utilize to create a positive return on investment is to hire a general contractor with a proven track record to complete the work for them within their budget and on time to avoid project overspending or a loss-to-lease scenario with a value-add property.


How to put your capital to work and maximize your returns?

Exterior and interior improvements, amenities upgrade, management restructuring, enhanced marketing activities, and changing how the property generates income are among the most effective strategies to improve value-add properties and generate higher cash flow and accelerated capital appreciation in the future.


Kitchen and bathroom remodeling, in-room washers and dryers and amenity upgrades relevant to the property location and target group preferences could usually provide the biggest return on investment for real estate investors.


These repositioning efforts aim to increase revenue by implementing capital changes that make the building more appealing to renters, hence raising the value of the property.


Benefits of investing and repositioning value add properties?

The main advantage of value-add real estate investments is the potential for a higher return on investment when compared to core or core-plus assets.


When compared to other popular investment classes such as equities, mutual funds, and bonds, investing in value-add real estate offers numerous tax advantages.


To begin with, a property’s depreciation schedule permits investors to claim a variety of tax benefits as long as they own a portion of the property.


Furthermore, property investors can deduct the costs of upkeep, day-to-day repairs, utilities, and other expenses incurred in operating and maintaining an investment property.


If real estate investors are planning to build, acquire or renovate a building, or have done so in the past several years, a cost segregation study could be a powerful tool that might help boost their cash flow and could decrease their tax liability.


Savvy investors can spot gems in the rough, reposition the property, and then turn around and sell the property, or enjoy the same advantages as other commercial real estate purchases, such as potential appreciation and consistent, long-term cash flow.


Newly improved rental units tend to attract more serious renters with higher purchasing power that value property and amenity improvements that match their lifestyle.


New appliances and amenity upgrades lead to lower maintenance costs. Renovations, including new sinks, toilets, electricity, plumbing, kitchen, bathroom and amenity upgrades could provide amazing savings on maintenance and will accelerate the rate of your ROI.


How to minimize the potential construction and loss to lease risks of value add properties?

The fact that value-add investing focuses on assets in need of rehabilitation, uses greater leverage than traditional real estate investments, and relies on construction and development projects to create profits sets it apart from conventional real estate strategies.


The risk profile of value-add investments is greatly augmented by construction and loss to lease risks. Selecting the lowest bidder might seem the rational thing to do until you experience potential delays and higher construction costs in the process leading to uncompleted units on time and loss to lease. This may impact your future cash flows and return on investment.


Value-add is a fantastic opportunity for individual or group investors to use their real estate skills and collaborate with an experienced general contractor to do the heavy lifting for them to achieve higher profits than projects that do not include a value-add component.


Hiring a trusted and experienced partner that can execute the entire project without construction or loss-to-lease risk is simply priceless in repositioning of value-add properties to make sure that your project KPIs are successfully met and your ROI and future cash flows are secured and maximized.


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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