There are many ways to invest in real estate. Many asset classes. Many styles. Many locations. Etc.
Savvy investors are able to generate a return on investment in many unique niches.
But ultimately, it comes down to two very distinct styles.
1. Buy and Hold
2. Value Add
Buy and hold investors acquire real estate simply for the benefits of owning real estate. They purchase an asset, receive their rental income, and over time, due to simple economics (they aren’t making any more land), the asset’s value typically increases.
Due to real estate being such a tremendous asset class on its own, this is a viable strategy, and fortunes have been built this way.
The other strategy is Value Add. In my opinion, this takes all the great components of the buy and hold strategy, and “juices it up” to another level. This is the predominant strategy we utilize in our private equity funds and syndicated transactions.
Value add is all about taking a building in its current state, and through a specific improvement plan, taking it to a state of higher value. It’s about taking the current net operating income on a building and increasing in a significant fashion.
The theory is simple, double the NOI of a building, and you’ll double the value of the asset. When you are talking about multi-million dollar transactions, large increases in NOI can mean a huge increase in net worth for all equity investors involved.
More on the value add next time.