My personal real estate investing favorite is the Value Play. I always say my favorite is Capital Growth and the Value Play accelerates Capital Growth quicker than anything. The Value Play generates quick equity – and equity build up is the number 1 tool to create wealth. When you are purposefully investing, you can create quick equity build up by creating the Value Play.
What Is A Real Estate Value Play?
Making a quick change to the property that will generate more income and or increase its value. A couple of value plays to consider.
Buying an improperly managed property: During real estate markets like we are currently experiencing, it is easy to find properties that have been improperly managed. Many people are stressed right now and they tend to lose perspective as to effective property management principals. They do not keep up on current rents and therefore the property, which is valued on the income it generates, is held back.
Value Play: Purchase the property, manage the property correctly and bring rents up to current market rents. The increased rents will not only give you more cash flow, but will also increase the value of the property because the value is in direct proportion to the income it generates. Things to watch out for, DO NOT get caught in the trap of paying comparable prices for the property. You should only pay the value based on current rents. Too many investors pay on future value, thus eliminating the Value Play all together.
Value Play: You buy a property that is in good repair but dated. You put a coat of lipstick on it (paint, maybe some carpet and clean it up) and rent it for fair market rents. Most tenants want a clean place to live with things that are working and taken care of, but do not expect new appliances or remodeled kitchens or baths. Hold the property for a number of years and until your local market turns into a sellers market. You can then do some capital improvements. Update the kitchen, baths, roofs, whatever may be needed. Your target here is to sell a “move in ready”, fresh and updated product to the end user. You have just created the ultimate value play. You bought the property at a low price; you kept your expenses low while generating great cash flow and preserving your cash. You then put in your capital improvements and instantly turned it for a huge profit.
Turning a property into its highest and best use
Value Play: There are many ways to obtain this, but a great example of this is the condo conversion (this is better strategy in certain locations that are in need of condo, so do proper diligence). I once turned a 50% profit in 6 month using the condo conversion strategy. You can read the details about this real estate value play by clicking the link!
In essence, a value play is the easiest way to make big money, because you are working SMART instead of working HARD. The ultimate leverage is when you take something of little value and then use some creativity and diligence to convert it into something of big value. Pay attention to what is going on around you, and read between the lines in local news articles. For example, when your read that a big company is moving in and will generate lots of jobs, are you reading just that OR are you reading an article that says NOW is a time to buy the distressed house down the block from this new company? Soon you will be able to convert the low rents to higher rents by sprucing the place up and charging more as this will be a highly sought after location to live as many people will want to work near their new employment.
Keep your mind open to the possibilities, be a purposeful real estate investor and capture the value play.
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