ADDING VALUE
CREATING COMMUNITY
F or the purposes of this article, we need to put some concrete defini- tions with some terms that do not have the same meaning to every investor. Here are a few terms you will see in this article along with an explanation of how I define them in my business: VALUE-ADDING: When you analyze your options for “forcing” value into any real estate-based asset, take a look at the customer base who will use that asset and play a direct role in your ability to achieve positive returns. When I discuss value-adding, I refer to the ways in which you can increase income and decrease expenses. VALUE PLAYS: Strategies used for the purposes of value-adding. These are concrete changes that you make to your oper- ations or the physical structures (like buildings) that are part of your real estate investment. tential in this facet of value creation than in value plays, although those are also important. When you look for places where adding value is an option, look to your customers and their community for opportunities to motivate, inspire, and impact the community, thereby strengthening it and bringing added benefit to the people living in that community. When you add value in this manner, your real estate investments become more attractive to residents and, as a result, you will likely enjoy longer tenancies, happier tenants, and the knowledge that you have truly im- proved the lives of those who sustain your business. ADDING VALUE: To me, there is much more po-
• Thou shalt place focus on relation- ships. Be proudly in the business of transformation in terms of properties and people. Regardless of your personal real estate strategy, at the end of the day this state- ment is true: “We (your team and yourself) are in the business of transformation. We acquire and reposition distressed assets, then rein- troduce those homes in to the community.” LESSON LEARNED: Reframing your mindset will enable your residents and members of your target market to begin to see living in one of your real estate investments in an entirely new light. This strategy is particularly useful if you invest in multifamily real estate or long-term rentals where creating community creates demand and keeps existing tenants in place longer. Howev- er, this strategy can also be leveraged if you fix-and-flip or even wholesale, since it is as much about creating the right perspective of yourself in the business as it is about creating a physical community for your buyers. VALUE-FACTOR #2 PHYSICAL CHANGES The physical changes you make to a property are straightforward and easy to identify. For example, either you re- placed the roof, or you didn’t! However, value plays, as we defined them at left, are not an all-or-nothing proposition. Sometimes, your budget will not allow for every upgrade you would like. When you have to make tough decisions about physical changes and improve- ments, take a minute to use your senses to identify what physical changes or improvements will add the most to the appraised value of the property and also the attractive sense of community you want a resident to feel. Take a look around, paying attention to
your feelings as well as financial necessities. Here are a few things you might identify: • PUBLIC UTILITY OPTIONS: This is a very concrete, practical way to decrease your utility expenses. Some investors find they save as much on utilities as $100,000 a year using strategies like submetering, which is a system that enables you to track individual residents' utility usage and bill individually, thereby encouraging energy conservation and lowering energy costs. Clearly, savings of that magnitude add to the market value of a property from the moment they begin. • THE NEED FOR NEW LOCKS: Sometimes, value-adds are small but significant. Residents feel an improved sense of security when the locks on the doors are modern and have clearly been upgraded or replaced recently. Interestingly, we also find that installing peepholes in front doors without them and offering personalized security options does not make residents fearful, but instead makes them feel protected and safe in their homes. • A POTENTIAL COMMUNITY SPACE: This type of value-add is one of the best, because it enables residents to foster their own sense of communi- ty and build relationships that last. When relationships last, the com- munity becomes more desirable and tenancies tend to become longer. Community spaces are not just large buildings for gatherings. We have experienced great rewards from in-
Tammy Phelps-Keglovich (third right) and her husband, Jim (second left), pose with three residents in their Baltimore multifamily community.
3Value Plays to Create Community INTANGIBLE ASSETS BRING TANGIBLE RETURNS.
by Tammy Phelps
I
that the creation of community, a largely intangible concept, brings some of the most valuable, tangible results. In my experience, there are three dis- tinct aspects to both creating opportuni- ties for value-adds and for adding value. I’ve outlined them below. VALUE-FACTOR #1 MINDSET Carefully consider how you frame your thoughts and your language in your internal dialogue, your profes- sional discussions with colleagues and co-workers, and with your residents and target market. The concept of mindset is so simple on the surface, but many
’ve spent more than 20 years as a real estate investor, and here
otherwise far-sighted investors fail to see how integral it is to create a long-term, self-sustaining, productive community of real estate investments. Here are a few examples of “com- mandments” that work for me when I am working on my mindset: • Thou shalt not say “tenant.” Use the word resident. It fosters a feeling of permanence. • Thou shalt not say “I” when you should say “we.” You have a team who helps you. Put the focus on them.
is a very important lesson I’ve learned: There’s what they tell you, and then there is the real investing world and the way it actually works! Being a real estate investor is not easy, but things become much simpler when you take the time to identify, create, implement, and sustain value-adding strategies in your business. However, adding value to an investment is a very subjective concept because it is both very broad and very personal. In my real estate investments, which tend to be multifamily developments, I’ve found
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Tammy Phelps-Keglovich is a commer- cial multiunit investor and the founder of ccREIA. She may be reached at hello@capitalcityreia.com.
44 | think realty magazine :: april 2018
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