Turnkey 4-Plex Purchased - Is There a Value-Add Opportunity?

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We recently closed on a 4-plex near Tucson's growing downtown and I just wanted to talk about the deal and where we saw hidden value. The property itself did not need a ton of work. We contacted the owner and they were interested in selling and we struck a deal (I.e. this was an off-market transaction). The seller had a roof replacement, new AC units installed (a big deal in Tucson, AZ), and had installed new water heaters, etc. As a result, the property was in solid condition. The units had good size, private backyards, solid cosmetics, etc. When you see a property like that, most may think that there isn't much of a value add opportunity. 

So, was there any upside? Easy answer, YES. 

Long answer?  What we noticed is the sellers management company had marketed the rents low so that they could get tenants in there as quickly as possible. For the seller, he approved quick rental turnover so it worked out for them. In doing that, they had all of the units rented out at $600/month for nice 2bd/1bth units. For us, we always want to maximize the value as much as possible. By simply calling the owner of the property next door (who had very similar units) and looking at rental comps, the rental value could increase by $100 so that was a huge bonus for us moving forward. 

On top of that, the property is in an up and coming area near Tucson's growing downtown area (Caterpillar headquarters being developed, completion of the AC Hotel - owned by Marriot, and many more ventures). With that happening, we're seeing a 6-7% annual rental appreciation in the location of the 4-plex. As a result, all signs point to an appreciating asset due to the location. 

Yesterday, we closed on the property and a tenant had moved out the weekend before the closing. Although beginning a purchase with a vacancy isn't ideal, we were able to push the rent on that unit so the value-add play can begin. I transferred the management to our in house company and within one day, we have 6 showings scheduled for $750/month + utilities. Potential renters seem very excited about the unit and we may be able to get $150 above the market value. We are very excited about this property and its potential.

The reason for this post was to show that value-add doesn't always apply to renovations - Instead, making minor adjustments to marketing the asset: price point, professional photos, etc, can change the dynamic of the property and you'll be able to reap the benefits of the hidden value.