“Some people look for a beautiful place. Others make a place beautiful.” - Hazrat Inayat Khan

What are commercial value-adds in real estate syndication?

You’re probably familiar with the typical fix-and-flip residential real estate profit model because it’s all over HGTV, and I, too, can’t get enough of the excitement. This single-family model involves “flippers” purchasing distressed or run-down residential properties, renovating and upgrading them, and then selling them for a profit.   If you were the flipper, you poured in your talents, time, and sweat equity, in exchange for profit from your investment.

This is essentially a value-add deal for a residential property.

 Applying the fix-and-flip concept to multifamily real estate on a larger scale involves a collaborative effort between the general partners and investors to acquire, improve, and ultimately sell a multifamily property at a higher market price.   There are a few different value-add strategies, but they’re about making improvements that will solve the biggest problems of the property or make it more attractive for potential tenants and buyers.

 Interior Value Adds include:

• Fresh paint

• New cabinets

• New countertops

• New appliances

• New flooring

• Upgraded fixtures

Exterior and Common Area value adds:

• Fresh paint on building exteriors

• New signage

• Landscaping

• Dog parks

• Gyms

• Pools

• Clubhouse

• Playgrounds

• Covered parking

• Shared spaces (BBQ pit, picnic area, etc.)

Increasing the overall efficiency of the property can add value:

• Green initiatives to decrease utility costs

• Shared cable and internet

• Reducing expenses

• New property management team

A crucial aspect of the value-add multifamily real estate syndication process is efficiently renovating and improving an entire multifamily complex while tenants are still living there.   This requires a great property manager and asset manager that have a specific business plan.   This approach requires careful planning and management to minimize disruptions to current tenants.  Here shows this process typically works:

 1.        Prioritize vacant units – These units can be easily renovated without displacing existing tenants.

2.      Tenant lease renewals - Existing tenants whose leases are up for renewal are given the opportunity to move into an upgraded unit and refresh their living space.  Many tenants are willing to pay more for an improved unit. 

3.      Minimize Disruptions – It’s essential to minimize noise and disruptions to the tenants. 

4.     Gradual rental income increase – As more tenants move into the newly renovated units, the overall rental income increases.  The property gains improved cash flow, which benefits both the investors and the property’s long term value.

 Effective property management and communication with tenants are essential for the success of these value-add projects.  By carefully planning and executing renovations while accommodating existing tenants, investors can enhance the property’s value and provide a better living experience for residents.   It is a win-win! 

 As you explore the possibility of investing in your first or next real estate syndication deal, look for partners who prioritize capital preservation and have a variety of risk mitigation tactics in place. Some excellent ways to mitigate risk include: 

• Conservative underwriting and financial analysis. 

• Proven business model (e.g., some units have already been upgraded and are achieving rent increases). 

• Experienced team with a plan for the takeover of the property.

• Thorough market research is completed. 

• The budget for renovations and capital expenditures is raised upfront, rather than through cash flow. 

By carefully evaluating these factors, investors can reduce the inherent risks associated with real estate syndication and increase their chances of a successful and profitable investment.   Leading Edge Capital LLC does all of this for you, and partners with the most experienced investors in the market to minimize risks. 

Join our investor group at https://leadingedgecapital.net/ContactUs and connect with us.    We would be happy to give you more information and answer any questions you may have.