How Value-Add Investing is Like Practicing Medicine
Physicians As Real Estate Investors
You take a last sip of coffee, a strong but sweet hit, before turning your attention to the list in front of you. It’s 8 AM Monday and time to start your morning rounds. You review each patient’s case with your team of residents, PAs, NPs and interns who chime in with updates and side comments. Patient 1, simple URI, should’ve never been admitted, Patient 2, a direly ill gentleman possibly beyond the aid of modern medicine, Patient 3, John Smith, a challenging but thoughtful case who after much hard work has turned around and today is to be discharged.
Your entrance to Mr. Smith’s room ushers a smile to his face, one of gratitude and appreciation for the care you and your team have provided to him. You lift the bell of your stethoscope to his chest and listen to the gentle lub-dub of his heart, now you smile too for it is you who is truly blessed for having had the opportunity to care for such a great man.
At first it may seem this experience and the one of value-add investing in apartment communities is as viscerally different as blood and water. Before you decide, lets examine what exactly it is that value-add investors do.
The value add investing strategy: Acquisition
The value-add investing strategy involves 3 major phases: acquisition, reposition and then disposition. Clinicians also run through a similar 3 phase routine: assessment/diagnosis, treatment/plan and ultimately disposition/discharge. During the acquisition phase, the value-add investor finds an apartment community that is not operating at its full health. With clinical precision, it must then be determined why this community is not at its full potential, how healthy it could be, and how to help it to achieve its healthiest state.