Value-Add vs. Turn Key Real Estate Deals: Which One Makes A Better Strategy?

Updated: Jan 9, 2021

Generally speaking, there are two main strategies when buying multifamily properties: Turn Key and Value Add. These strategies are very different and both have pros and cons.

In a turn key investment, the buyer does not plan on making any significant changes to the property. They might change the property management company, but the property simply changes hands and everything else stays the same: the rents, design, amenities, etc. Turn Key deals usually provide lower returns. Value-Add, on the other hand, is a very popular type of investment today, and I usually do not consider deals that have no value-add component. In a value-add deal, the buyer is looking for a way to increase the property’s profitability. It can be done by applying any of these methods:

1. Renovating the amenities, property exterior or units and increasing rents.Syndicators conduct a market research and analyze nearby buildings with similar vintage (age), amenities and renovation level. If they find that a property is charging rents that are lower than the comps, then it is a great opportunity to renovate the building and increase rents to match the nearby, nicer buildings. The gap between the current rents and the new, higher rents is called the “premium.” Some of the most popular value-add strategies are:

a. Renovating the unit’s interiors (kitchen, floors, bathrooms, paint throughout the unit, etc.)

b. Adding washers and dryers to the apartments

c. Adding reserved parking

d. Renovating or adding new amenities (gyms, package distribution center, dog parks, etc.)

2. Finding a property that has below market rents and increasing them to match market rents.