Types of apartment investment strategy
There are several strategies for investing in apartments. These strategies are value play, yield play and hybrid play.
A “yield play” refers to a building that will make money from Day One. It will have very little deferred maintenance and/or occupancy problems. It is the safest of investment choices. This is why most institutional buyers target this class of apartment.
A “value play” is the opposite of a “yield play”. This type of property usually has a problem or two (or more). As a result, it may not qualify for a long-term loan, and may require a new owner to “rehab” the property to get it to perform. However, a value play offers the highest risk and reward. The danger of a value play is that most new owners believe they can fix the problems and stabilize the property, which is not always possible. A value play takes extreme skill, patience, and a little luck (in avoiding an economic downturn) to be successful.
Our preferred strategy is the “hybrid”, which is a combination of both value and yield. A hybrid strategy means picking a stabilized property that is already making money and qualifies for a long-term loan. In addition, there is still an opportunity to increase the property value. Remember, we only need to increase property value by 25% to double our money if we can secure a 75% LTV loan!
A “yield play” refers to a building that will make money from Day One. It will have very little deferred maintenance and/or occupancy problems. It is the safest of investment choices. This is why most institutional buyers target this class of apartment.
A “value play” is the opposite of a “yield play”. This type of property usually has a problem or two (or more). As a result, it may not qualify for a long-term loan, and may require a new owner to “rehab” the property to get it to perform. However, a value play offers the highest risk and reward. The danger of a value play is that most new owners believe they can fix the problems and stabilize the property, which is not always possible. A value play takes extreme skill, patience, and a little luck (in avoiding an economic downturn) to be successful.
Our preferred strategy is the “hybrid”, which is a combination of both value and yield. A hybrid strategy means picking a stabilized property that is already making money and qualifies for a long-term loan. In addition, there is still an opportunity to increase the property value. Remember, we only need to increase property value by 25% to double our money if we can secure a 75% LTV loan!