Real estate can be an enticing investment opportunity due to its potential benefits. But like any avenue for investment, different philosophies and strategies can be applied to obtain specific goals and objectives.
One such strategy is value investing—which is often used for stocks but can be beneficial in real estate investing as well. In this article, I will break down value investing in real estate, explain why investors may wish to implement this strategy into their investment plans. I’ll also explain how Canyon View Capital has tried to apply these practices in our investments as an option to potential investors.
What Is Value Investing in Real Estate?
Value investing involves finding stocks that are undervalued and buying them with the intention of holding on to them until they accumulate in value. Value investing in real estate involves examining markets and purchasing properties that are undervalued, or trading at a price lower than their intrinsic value. Unlike “flipping”—which is a strategy that involves purchasing properties, renovating them, and then quickly selling for a profit—value investing in real estate involves holding on to properties for potential appreciation in the long term.
The table below compares the two real estate investment strategies.
Value Investing in Action
Imagine that your primary market is San Francisco and you’re looking to purchase a multifamily property with the intention of renting it out to tenants. You may find that properties in some areas are expensive due to factors such as higher costs of living, operating expenses, and property values. Instead, you turn your attention to properties in the Bay Area that may be cheaper and will likely experience growth and demand for housing in the future, such as Vallejo or San Pablo.
If you decided to implement a value investing strategy in this area, you’d be purchasing properties for less money, with the expectation that specific market factors will drive demand for properties in these areas.
Benefits of Value Investing in Real Estate
There are many reasons why value investing can be a potentially beneficial approach to real estate investing.
- Cash Flow: Undervalued properties can be purchased and rented out to tenants, providing stable cash flow while anticipating property appreciation which could cover mortgage costs, property maintenance, or simply go back into your pockets as profit.
- Diversification: Since you’re buying cheaper properties intending to hold on to them for extended periods, you may be able to purchase more, resulting in a diversified portfolio of income-producing assets and protecting you against market fluctuations1.
- Safety and Stability: Properties are being purchased at a discount, so there is inherently less risk. Because you intend to hold on to properties long-term, you aren’t relying on quick turnarounds to make a profit.
- Tax Benefits: Real estate properties acquired through value investing may qualify for tax benefits such as mortgage interest deductions, property tax deductions, and expense deductions which could lead to more favorable tax returns.
- Long-term Wealth Accumulation: Strategically chosen real estate investments held over a long term have the potential to increase in value and build wealth while providing a source of income.
- Property Appreciation: The main goal of value investing in real estate is appreciation which could lead to potentially significant gains.
Value investing in real estate makes sense for investors looking for a long-term approach to investing. If you aren’t interested in the time commitment and responsibility of holding on to properties for an extended period of time, flipping may be an option. But, many of the benefits I’ve discussed are unique to a value investing strategy.
However, like any investment strategy, nothing is guaranteed, and there is always some level of risk. This is why you should consult a financial advisor or tax professional before implementing a new investment strategy.
How Canyon View Capital Helps Investors Like You
Here at CVC, we’re passionate about real estate investing and try to apply value investing in real estate as one of the pillars of our investment approach. Our principals share over 40 years of cumulative experience in multifamily investing, with a portfolio of multifamily real estate now valued at $1 billion3 centered in America’s Heartland.
Our goal is to leverage our portfolio, experience, and deep local market knowledge to allow investors to enjoy the fruits of real estate investing without purchasing and managing properties themselves. Driven by our “buy-and-hold” philosophy to real estate investing, we seek higher yields than is typical of speculative markets and offer our investors passive losses through appreciation in addition to rental income and tax benefits.
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34$1B figure based on aggregate value of all CVC-managed real estate investments valued as of March 31, 2023.
Eric Fisher, Chief of Staff
Eric joined Canyon View Capital in August 2021 with 15 years of hotel management experience grounded evenly between Property & Corporate Operations, and Business Development & Acquisitions. After $500M+ in hotel acquisitions, Eric uses his nuanced understanding of the acquisitions and transitions processes to support CVC real estate investments. His professional versatility makes Eric an invaluable resource for the President and Executive Team in all business functions, including Investments, Operations, and Strategy.