Define the value-add
Value-add means increasing NOI by raising income or cutting costs: unit renovations, bringing offline units back, better management, utility billing, or adding income such as laundry or storage.
Test the rent premium
Find renovated comparable units nearby and confirm the rents they actually achieve — not asking rents. The premium must justify the renovation cost with a reasonable payback.
Budget with contingency
Get contractor bids where possible and add a contingency (often 10–20%). Account for lost rent while units are down and higher turnover during the plan.
Stabilized value vs all-in cost
Compare your all-in basis (price + closing + capex + carrying costs) with the value of the stabilized NOI at a conservative cap rate. The spread is your margin for error.
This guide is general information, not legal, tax or financial advice. Talk to your own advisors about your situation.
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