Value-Add Properties Still Have Plenty of Upside to Offer Multifamily Investors

It’s still possible to get strong yields by investing in and repositioning class-B apartment buildings.

Investors are still eager to buy apartment properties where they can raise the rents and achieve strong yields.

“There is a vast amount of capital in the multifamily space targeting value-add apartment properties,” says Rick Hurd, chief investment officer for Waterton, a real estate investment and property management firm.

Rents are growing slowly for apartment buildings overall, and that has led to a slowdown in property price growth. But investors can still find value-add opportunities where a few thousand dollars in renovations can justify higher rents.

“Value-added is still a viable investment strategy at this point in the cycle—and will continue to be for short term at least,” says Andrew Rybczynski, a consultant at research firm CoStar Portfolio Strategy.

The properties are out there

Demand remains high for older, less expensive apartment building in many parts of the country. “There is massive demand for well-located, decent apartment complexes with almost no new supply,” says Hurd.

At many of these properties, if the rents go up, they will still be far below the cost of living in a brand-new building. “You can still buy value-add apartments at attractive pricing, invest additional capital to upgrade them and still be significantly below replacement costs,” says Waterton.

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