Finding a Diamond in the Rough: Your Value-Add Property Search

04/15/2017

Industry Insights Deal Book

When it comes to finding value in potential investment properties, small indicators can lead to big value. Let's take a look at how to find the best value-add property. Considering many factors relating to a property’s potential value is essential to arriving at a realistic purchase price. Investors are looking at local market information, factoring in the cost of construction and the renovation process, and in some cases they are able to see a better and more profitable use than what currently exists. Knowing some value-add cues to look for in a commercial property search can greatly improve potential ROI. Here are some factors that may indicate that there may be more to a property than appears at first glance.

Below market rents

A simple way to boost revenue is to raise rents. If a potential investment is charging tenants a rate below the surrounding market average, there’s opportunity there. It’s essential to take into consideration larger market trends when weighing the potential of a given property.

Development and population increase in the area

Another market factor to keep a close eye on is population growth. If the trend is strongly upwards, properties in the area have a tendency to gain value. The same holds true for surrounding development. This can have a far-reaching effect on the value of investment properties.

Stale listings or off-market deals

Looking at specific types of listings can yield some high-value deals. In many cases, stale listings that have languished on the market can be picked up for well below the asking price. Additionally, off-market deals can be great opportunities, since there’s less competition for those properties.

Know the zone

In some cases, there are hidden opportunities to be found through research into zoning laws in a given location. There may be options for property use that would allow conversion of a building or facility that boosts profits. Lot size and immediate surroundings can also create possibilities for expansion that will result in more revenue from the property.

Consider new options

Investors can create value in properties when they think outside the box. In many markets, it can be very useful to consider a location’s potential for use as an AirBnB property, for example. Approaching each property with an open mind and flexibility can pay off.

Know the story

Checking into the property’s tenant history and mortgage information can reveal some opportunities for investors as well. For example, knowing that a rent-controlled tenant may be vacating a property soon adds value to that investment. It is a certainty that the rent can be increased significantly in this sort of situation. The potential profit from a given property is influenced by a wide variety of factors. Knowing what to look for allows investors to formulate realistic and competitive offers. Failure to pick up on these cues could mean missing out on some amazing deals. Identify those diamonds in the rough by staying informed on market trends, property history, and local ordinances and development projects.