Real estate is always a tremendous income-producing asset, but finding the right property with the perfect blend of price, cash flow, and appreciation can be difficult. That is where value-add real estate comes into play.
Before successful real estate investors buy a value-add property, they ask themselves, does this investment opportunity give me the best balance of risk and reward that correlates with my investment strategy?
These real estate properties are known as class A properties. Class A properties are almost brand new or fully updated in the best five-star neighborhoods with minimal risk.
Core-plus properties are similar to core strategy properties, located in desirable locations, but could need minor capital improvements or exterior and interior upgrades.
An example of an opportunistic investment strategy would be an investor that buys opportunistic properties that need significant rehabilitation to fix and flip, also known as flippers.
The definition of value-add real estate is to find ways to generate more cash flow or yields by discovering untapped revenue potential or creating value through property upgrades.
Value-add real estate is in the middle of the other investment strategies and right in the sweet spot on the risk and reward spectrum. But it is riskier than the core real estate investing strategy and less risky than the opportunistic investment strategy.