Glossary term
Value-Add
Value-add is a strategy of buying a property with room to improve, then raising income through renovations, better management or lower costs.
A value-add property is one where changes can increase net operating income. Typical moves include updating interiors, improving amenities, adding income like storage or parking fees, fixing operations and bringing below-market rents up to market over time.
Because NOI drives value, a higher NOI after the work can raise what the property is worth. The plan must account for renovation cost, downtime while units are turned and the time needed to lease them.
Value-add carries execution risk. The returns shown in a plan depend on the work being finished on budget and the market paying the new rents.
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