James Kandasamy makes the case that forcing income growth is the safest thing you can do, because a bigger income buffer is what protects you from your biggest partner, the lender. On this episode, host Abel Pacheco and James break down the magic of value add.
In this episode:
- The engine, defined plainly: "The cornerstone of commercial real estate is force appreciation or value add. You can increase the income or reduce expenses, and income minus expenses, you get net operating income."
- His contrarian headline: "Everything has been value add. Yield play is too high risk for me."
- How the safety is built by growth: buy at a 1.25 coverage ratio, push the income, and climb to 1.5, then 1.7, then near 2.0.
- Why growing net operating income is both the offense and the defense.
- The takeaway: "the safe deal is the one where you forced the income yourself. The lucky one just rented its buffer from the market."
Abel Pacheco is a San Antonio real estate operator who went from 8 single family houses to a share of roughly 1,500 apartment doors, and now works as a fractional Chief AI Officer helping small and mid sized businesses put the back office on autopilot.
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