Value-Add Property: A Strategic Way To Approach Investing

Investing in a property that requires some TLC and renovations, often referred to as a “value-add” property, can be a smart, and financially rewarding way to
kickstart your real estate investment journey. This approach not only allows you to potentially increase the property’s value but also provides you with financing
advantages that can significantly reduce your upfront costs. Some of the benefits and strategies associated with buying a value-add property include:

Lower Down Payment Opportunities: One of the key advantages of purchasing a value-add property is the ability to finance it as your primary residence.
This option typically comes with lower down payment requirements. For instance, with an FHA loan, you may only need a down payment of around 3.5%. If
you’re a veteran, or if you choose a home in a qualifying rural area, you might even secure financing with a 0% down payment through a VA or USDA loan.
These reduced down payment options can free up your capital for renovation expenses.

Live-In Renovation: Buying a value-add property and living in it while you renovate or improve it is a practical strategy. Not only does it allow you to save
on living expenses, but it also provides you with the flexibility to work on the property at your own pace. Living in the property gives you a firsthand
understanding of its needs, allowing you to make informed decisions about renovations and improvements.

Tax Advantages: For tax purposes, you’ll generally want to consider living in the property for at least one year, or ideally, two years if you wish to avoid
paying capital gains taxes on the property’s appreciation when you eventually sell it. This can provide significant tax savings, which can be reinvested into
your next real estate venture.

Rinse and Repeat: After you’ve completed the renovations and have your next house in sight, you have the option to transition the property into a rental. This
“rinse and repeat” strategy allows you to use the value-added property as a source of rental income while you move on to your next real estate acquisition,
again as a primary residence. Over time, this approach can help you build a portfolio of income-generating properties.

*Assessing The Property Before Purchasing: It’s important to conduct thorough due diligence before purchasing a value-add property. Assessing the
renovation costs, potential market appreciation, and rental income potential prior to the purchase is key to ensuring that the investment aligns with your
financial goals and risk tolerance.

Buying a value-add property and living in it during renovations can be one of the most advantageous and cost-effective ways to enter the world of real estate
investing. This approach leverages lower down payment options, tax benefits, and the opportunity to gradually transition the property into a rental when you’re
ready. While it requires careful planning and hard work, it can be a rewarding path to building wealth and expanding your real estate portfolio over time.

Traci de Wid is the Broker & Chief Wealth Builder at Residential Wealth Partners. Traci founded
Residential Wealth Partners aiming to transform the real estate landscape and get more people thinking
about their homes and investments from a long-term perspective. For more information, visit: