How Investors Can Earn Big with a Repositioning Strategy
Welcome to another segment of our Smart Investor Quick Tip series.
As a real estate syndication company, we are always searching for ways to increase our investors’ returns. I’m going to share a strategy with you today, that can do just that.
Did I just peak your interest?
Most people are familiar with rehabbing or flipping properties for profits. There certainly are enough reality TV Shows about it! (I enjoy watching these by the way). Repositioning is less known but it can be much more lucrative. It typically it involves more than just a physical change to the property.
Repositioning is essentially taking a property in its current state and “bringing it up a notch”. It’s re-branding the asset with exterior and interior improvements to increase the class level of the property to attract more quality tenants, and in turn obtain higher rents. This increase in income results in an increase to the Net operating income (NOI). This in turns raises the value of the property. It’s a highest and best use strategy.
An example of repositioning is changing a property from a “C” class to a “B” class asset. If you are not familiar with building classes, check out my video below.
A great deal of marketing is often required is get people to see it as an upgraded property. The transition period can also be a tricky time as you switch out existing tenants with newer tenants. Obtaining new tenants at higher rents, while you are still renovating old units at lower rents can be challenging. Hence having a property management company that has extensive experience in this strategy is absolutely imperative.
A repositioning can be both labour and time intensive. It’s more than just a rehab of the property. You need to do your research with respect to your competitors and the neighborhood you are in. For example, if you have a C class property in a C class neighborhood, and you re-position it to an A class, you may not get the tenants you want as they may not see their surroundings as a desirable place to live. The last thing you want to do is inject a lot of cash into upgrades and not be able to get the desirable rents, because you can’t get them leased up.
A repositioning however, can certainly be a lucrative pay off when done properly. Being able to increase the rent, increases the value of the property and brings it to a different CAP rate. That forced appreciation is every investor’s dream.
Key take away…..You need to know your market and your competitors to make sure you do only the work needed to get the higher NOI you are seeking. Work closely with your experienced property manager to ensure you don’t over spend and to execute your plan properly.
Not every property will benefit equally from the repositioning strategy. It’s imperative you understand the market, know your competition, perform your research to determine if a repositioning is the right strategy for you, and have a concrete plan.
Well, that wraps it up for the Smart Investor quick tip for today.
Remember, real estate doesn’t have to be complicated. With Simple acquisitions it’s smart AND simple.