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When do Real Estate Investments generate the most returns?

When we look at a simplified life-cycle of a real estate investment, there’s 3 basic phases:

  1. The Acquisition phase

  2. The Value-add phase

  3. The Hold period

This 3 part timeline is essentially the breakdown of any fyre CAPITAL property. We especially focus on the acquisition and value-add phases, with the hold period being more of a waiting game to sell...but why? So what are these phases exactly? When are the highest returns generated? And how does our strategy differ from the typical buy & hold investor?

The typical single family home investor spends a little time finding a property, tries to get the best deal they can and after some minor improvements finds some tenants. This is the 'Buy & Hold' investment strategy and...

While its a viable way to generate returns, shifting focus to the other 2 phases in the life-cycle will generate out sized returns over the long term.

Virtually all value created in real estate occurs in the acquisition and value-add phases. Much like a developer, a value-add investor is improving the property to target a segment of the rental market and then divests of the property at the most opportune time.

During the acquisition phase, the investment team is forging broker relationships, direct owner relationships, loan broker relationships, property management relationships & construction management relationships. It can take months even years to find the right property. Just like Warren Buffet says, 'money is made on the buy, not on the sell'. The same is true of real estate. Sure...your check might get cut when the property sells, but all that return was generated back in the earliest phase of the property life-cycle: The acquisition phase.

Following the acquisition phase is the value-add phase. This is when the business plan for the property is put into action. Exteriors are renovated, amenities are added or improved, and unit interiors are upgraded. The key in the value-add phase is choosing the right projects to generate the right returns within a specified time-frame. Think of the value-add phase as composed of many smaller investments, each evaluated for risk & return relative to time required. Each of them requiring an investment decision. If stainless steel appliances are commanding a solid rent premium in the market relative to other appliance types, we might invest in that project. If adding an Olympic sized swimming pool to a property adds significant value, but will add years to the project, it might not make sense to undertake that particular project.

Most single family home investors make the critical mistake of holding onto properties for years and years. The value of that property is pretty much guaranteed to increase over time and looking back after a 20 year hold period might reveal a big value jump. But what was the opportunity cost of holding that investment? The lowest returns in the investment life-cycle are generated during the hold period. While they may be great returns, its worth looking into and understanding other investment strategies.

The acquisition and value-add phases require a tremendous investment of time and capital. Most investors simply don't have the time or resources to focus on these early phases.

But this is where the money is made to put it bluntly.

If its return on investment you’re looking for in real estate, its best to focus on the projects that spend the most time in the early stages of the real estate investment life-cycle.

Invest with fyre CAPITAL

fyre CAPITAL is a commercial multifamily investment firm. We purchase and/or partner in 150-600 unit, value-add apartment communities in fast-growing Tier 1 & 2 U.S. markets. Together with our strategic partners, fyre CAPITAL represents over 500 Million Dollars of successful real estate acquisitions. Our developers, sponsors and capital partners have amassed a network of over 1,500 unique investors. We provide new opportunities to invest in projects targeting a 14%-21% Internal Rate of Return . If you would like to join us on our next project, your first step is to Submit an Interest Card. We look forward to partnering with you.

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