Was renovating three years ago still the right call?
If you've been worried about risk in today's market, that's smart, and you're not alone. We hear a version of this question often: was it smart to spend money on renovations when today's rents are about the same as they were back then? We still think the answer is yes. Here's why.
The backdrop
Foreclosures in multifamily are rising, and the pace is accelerating. 2025 saw the highest rate since 2015, and 2026 is running higher still.
You may have heard of the maturity wall, the wave of multifamily mortgages coming due. Many of those owners can't refinance without putting in a lot more equity or taking on a much higher rate.
That's the owner who couldn't keep rents at market. The owner who didn't renovate. Nice properties got bought with short term, low interest loans because that was the only way they'd cash flow, and when it came time to refinance, they couldn't pay the mortgage. Pressure built from every direction on some of the nicest apartment complexes across the country. Some markets were worse than others, but here we are.
You're probably measuring it against the wrong baseline
If you renovated and rents went sideways, it's tempting to compare today's value to the value when you bought. That's the wrong comparison.
The right one is the value of your property today, renovated, against the value of that same property today if you'd never touched it. That second property is the one losing residents, deferring maintenance, and struggling to refinance.
We're real estate investors. We hope the market helps a property appreciate, but we don't depend on it. When we renovate units, improve curb appeal, and take care of deferred maintenance, we expect income to rise and the property to be worth more. And if the market drops, that same work is what helps the property hold steady. Reacting to a hard market by swearing off value add entirely is the wrong lesson.
Five reasons value add still works
1. The maturity wall is creating opportunities. Owners who bought aggressively with low-rate, short-term loans need someone to solve their problem, often by selling at a discount. John has made offers on fully renovated properties where the owner never pushed rents. They rented a unit or two at market to prove the model, then filled the rest with decent tenants at old rents, often because they ran out of capital improvement funds or had a balloon payment coming due with no way to refinance. That's a property with much of the renovation risk already taken out, but it still demands careful due diligence to find.
2. Residents have jobs, many of them good ones. They want a nice place to live, not a bare minimum one, and they'll pay for it.
3. The gap between well-run and poorly run properties is wide. Picture the struggling owner. Rents flat or falling, expenses climbing, projections built on the opposite, and the loan set the timeline. Time's up, no value got added, and there's no money left. So they cut costs by not fixing things and not taking care of residents. Residents stay a while, then leave. That's deferred maintenance plus vacancy, and that's the opportunity.
4. Inflation works in your favor over time. Fewer new units are being delivered because building costs have risen. The cost to replace the property you're looking at has probably gone up, and rents usually rise with inflation over time. This last cycle that didn't happen much, but historically it's common.
5. You create the value. Not a market force out of your control. You improve operations, renovate units, add amenities that bring in income and cut costs. It's not hoping. It's acting.
Not every distressed property is the same
Distressed properties come in different flavors, and knowing which kind you're looking at matters.
Some are financially distressed: bought at the peak, over-leveraged, or carrying short-term debt now coming due. If they're physically in good shape, they can sell quickly.
Others are physically distressed. The owner never set aside enough capital to renovate, or the units were worse off than expected, or they planned to fund the work from cash flow and ran out partway through. When tenants watch improvements stop, they tend to move out, and that compounds a problem the owner can't stop alone. If the surrounding market is still good and the building is otherwise stable, fresh capital is often all it needs. Those are the ones worth chasing.
When value add fails, it fails for a reason
When value add fails, it's rarely the idea that failed. It's usually the execution.
You've probably heard you make your money when you buy. We think that's misleading. A deal looks good and you buy it, and then there are a hundred ways to fail and only a handful of paths to success.
The best operators are obsessive about execution. They think through the consequences at every step, right down to pulling twelve months of utility statements and getting an accurate property tax figure from the county rather than trusting the seller's number. They keep their eye on the goal. That's what John looks for in a business plan, and it's what Cardinal Oak holds itself to on its own properties.
If you'd like to see how we think through a value-add plan, schedule a call with John.