By Jay Parsons, Greg Willett and Tracy Saffos For investors looking for a strong return at manageable risk over the last decade, one strategy stood above the rest: Acquire an older apartment property, spend millions more on renovations, then charge higher rents – driving up asset value. That traditional value-add strategy has worked exceptionally well for investors on thousands of properties since 2010. Many have since been flipped for a strong profit. In 2021, those deals are harder to come by. Investors are finding that sellers are pricing unrenovated properties at post-renovated prices, squeezing pro formas to less attractive margins. Additionally, construction material costs are skyrocketing – further complicating the math. And yet, surveys show continued investor thirst for apartment investment. How can investors find acceptable returns in a market where fewer traditional value-adds make sense? Some investors are already shifting to a new, fast-growing category: the low-capital value-add. What Is a Low-Capital Value-Add? A low-capital value-add is what the name implies: a value-add investment without the massive capital outlay for construction. The deals drive up value by attacking common operational inefficiencies that stifle asset performance, focusing on 2 lower-cost investments: service and technology. Low-capital value-adds bank on proven, NOI-boosting strategies long-adopted by leading institutional investors, forward-thinking owners and publicly traded REITs but still often ignored by some investors prioritizing capital-intensive projects and by long-term holders content with traditional operations. A low-capital value-add may still involve some capital costs – primarily for deferred maintenance, basic curb appeal and other critical upgrades. But an ideal asset for this approach is one with units requiring minimal immediate spend. The appeal of the low-capital value-add is that it puts intense focus on operational efficiency a...

By Jay Parsons, Greg Willett and Tracy Saffos For investors looking for a strong return at manageable risk over the last decade, one strategy stood above the rest: Acquire an older apartment property, spend millions more on renovations, then charge higher rents – driving up asset value. That traditional value-add strategy has worked exceptionally well for investors on thousands of properties since 2010. Many have since been flipped for a strong profit. In 2021, those deals are harder to come by. Investors are finding that sellers are pricing unrenovated properties at post-renovated prices, squeezing pro formas to less attractive margins. Additionally, construction material costs are skyrocketing – further complicating the math. And yet, surveys show continued investor thirst for apartment investment. How can investors find acceptable returns in a market where fewer traditional value-adds make sense? Some investors are already shifting to a new, fast-growing category: the low-capital value-add. What Is a Low-Capital Value-Add? A low-capital value-add is what the name implies: a value-add investment without the massive capital outlay for construction. The deals drive up value by attacking common operational inefficiencies that stifle asset performance, focusing on 2 lower-cost investments: service and technology. Low-capital value-adds bank on proven, NOI-boosting strategies long-adopted by leading institutional investors, forward-thinking owners and publicly traded REITs but still often ignored by some investors prioritizing capital-intensive projects and by long-term holders content with traditional operations. A low-capital value-add may still involve some capital costs – primarily for deferred maintenance, basic curb appeal and other critical upgrades. But an ideal asset for this approach is one with units requiring minimal immediate spend. The appeal of the low-capital value-add is that it puts intense focus on operational efficiency a...