Real estate is quite honestly, the most powerful tool in your financial toolbox.
So powerful it’s possible to double your money in a 5-7 year period.
If you hold a little longer, an extra .5 - .7X equity multiple can more than 2X your money!
How is this achieved?
By what is called a value add play.
An apartment value add is when you buy and either renovate or reduce operational inefficiencies to increase the occupancy of the building and/or rental income in a building.
Here’s where the power rev's up.
Performing renovations forces appreciation on the property because you can increase rent for the updates/upgrades/more amenities etc. Maybe that increase is $50, or perhaps it's $350.
It’ll vary depending on market conditions, current state of property and in place leases.
Let’s do some math…✍🏽
On a 100 unit complex, a $50/unit increase looks like this.
Assuming expenses stay the same.
$50/unit * 100 units translates to monthly increase of $5000 and an annual increase of $60,000.
Compared to single family: $50 increase on a single family rental equals $50/month in added revenue and $600 annually.
At $350/unit, monthly revenue increase is $35,000 with annual at $420,000.
The same is true for reduced expenses.
Apartment valuation is determined by the NOI. So value can increase based on additional income AND/OR reduced expenses.
An increase in NOI of $50,000 could translate to an increase in the sales price of $1M.
And this is how through value add, we are able to provide the higher equity multiples that pass down to our investors.
How’s that for power?
If you’re set for growth, invest in #realestate.
If you're reading this, then you are off to a great start!