Forced Appreciation & Multifamily Investments
- DMI Holdings
- May 31, 2022
One of the most important considerations when purchasing any investment is understanding how the asset is projected to grow.
In many cases, this is purely speculation when so many variables are entirely out of your control.
When it comes to real estate investing, these three rules do not change! One of the most essential and unique features of multifamily real estate investing is that it allows you to control the value of the real estate by reducing expenses and increasing income. Unlike single-family homes that are valued based on the buying and selling activity in a given market, multifamily has the advantage of “forced appreciation.” Here are some examples of a real 101-unit multifamily property with investors benefiting from this strategy!
After we acquired the apartment, DMI Holdings executed our “Value-Add” business plan by making some immediate adjustments to the net income the property was producing. The “Value-Add” business plan generally takes 18 to 24 months and includes:
- Water conservation installation $20,000 expense reduction
- Stackable washer/dryer units $109,000 increased income
- Private patio added on downstairs units $18,000 increased income
- Increased rents up to market value $121,000 increased income
TOTAL $268,000 additional income
By increasing the annual income on this property by $268,000 per year, the property’s value increased by $5,360,000 at a 5% capitalization rate within just 24-months. That is the power of forced appreciation!
Multifamily investing is one of the few opportunities available to investors that provide this type of control over increasing the value of an investment.
At DMI Holdings, we perform these calculations well before the property is acquired to ensure the investment is worthwhile.
