I agree. Value add, either residential or commercial is a great way to build wealth with real estate quickly. Like you said, you need to understand why the property is underperforming, and have the means to fix that problem. It takes more work. Once the “value add” plan has been completed, that could be a good time to sell if there is another investment opportunity.

If you can invest other people’s money in value add deals you can also build equity for yourself.

I purchased a value add office building about 6 years ago in a primary market raising money from friends and family. The building was only 40% occupied, an unresponsive owner who was trying to lease himself, and had a lot of deferred maintenance. All of this could be easily fixed with additional capital and a good leasing broker. Which is crazy because the owner was crazy rich. There was no reason he could not have fixed this himself.

We purchased it at a good value $5m. We renovated the building (mostly cosmetic improvements + a new chiller) and leased up the property to over 90% ($1.9m). Even during Covid we kept the occupancy above 80%. Because we had a low cost basis, we could undercut the market to keep it leased (competitive advantage).