While none of them are wrong, I believe the single best way to build wealth in real estate is through a value-add approach. It can be done at any price point with any asset type.
The main characteristics that define a great, value-add deal:
Purchasing at a great basis can overcome any number of potential economic or property-related challenges that the future might hold.
Through filling vacancy, increasing rents, and making property improvements, there must be a way to make the property more desirable and valuable.
While considering things like market, submarket, ingress/ egress, and property-specific characteristics, the property must be attractive to tenants and a future buyer.
Purchasing at a great basis can overcome any number of potential economic or property-related challenges that the future might hold.
Purchasing at a great basis can overcome any number of potential economic or property-related challenges that the future might hold.
Instead, one of the most important metrics that I account for when considering my portfolio is return on equity (ROE). Calculated as follows: NOI/ current equity. This metric gives an investor a true sense of how much of a return a property is providing, given its current market value.
Lastly, a very un-scientific but very important metric for an investor to consider is the property’s hassle-factor. Some properties (say, a multi-tenant office building with gross leases) might perform quite well on paper, but may also score very high on the hassle-factor scale through frequent tenant phone calls, vacancy, and capital improvement requirements. Hassle-factor is different for each investor, but it can’t be overlooked or underestimated. Most investors learn what their hassle-factor tolerance is through experience.