It’s easy to dismiss “buy low, sell high” as an investment cliche or mistake it for a waiting game—buying a property and hoping the broader market tide rises enough to lift their boat.
But professional fund managers behind private real estate investment funds, such as DLP Capital-sponsored funds, put this axiom into practice in a different way. By taking an active role in underwriting and asset management, fund managers can potentially create value for accredited investors through a rigorous operational strategy.
Deconstructing the buy: Purchasing real estate below replacement cost
From the vantage point of a professional fund manager, “buying low” isn’t the same as acquiring a “cheap” property. Rather, it refers to purchasing assets at a discount to their replacement cost—the current cost to build that same structure from the ground up.
In the last several years, rising labor and material costs have made new construction more expensive. According to the National Association of Home Builders, construction costs now account for upwards of 64% of the price of a new home, up from about 61% in 2022.1
When a private real estate fund acquires an asset below replacement cost, it’s purchasing an existing property for less than it would cost to build one from scratch. This can provide a margin of safety for the fund and its investors.
DLP Capital puts this acquisition strategy into practice by identifying distressed or under-managed assets. These may include properties that do not generate enough Net Operating Income (NOI) to meet debt service obligations, or communities that are not generating as much NOI as they could.
By identifying assets with value-add potential and acquiring them at attractive entry prices, funds like the DLP Housing Fund can help preserve the supply of attainable workforce housing while potentially creating value for investors.
Managing underwriting risk when buying low
Of course, distressed assets come with the risk of the unknown. Fund managers who use a multistage underwriting process to uncover and manage risk can identify properties that are potentially undervalued, rather than just “cheap.” At DLP Capital, underwriting involves:
- Rigorous Data Analysis: Using tools like Yardi Matrix and CoStar to compare rent comps and migration trends.
- Stress Testing: Return sensitivity analyses to assess how a project may perform if interest rates or cap rates shift.
- Group Decision Making: Acquisition decisions are overseen by an investment committee composed of members of DLP Capital’s senior leadership team.
By the time a DLP Capital-sponsored fund commits capital, the deal has been thoroughly vetted—with risks, mitigants, and value drivers already identified.
“Selling high” through active value creation
If “buying low” is about underwriting discipline and market expertise, “selling high” is about managing the asset well during the holding period. Asset managers can potentially create value through a three-pillar approach:
- Physical Renovations: Updating units and installing modern amenities to justify higher market rents.
- Operational Efficiencies: Implementing professional management to increase tenant satisfaction and reduce vacancy rates.
- Asset Repositioning: Changing how the asset is used or operated where feasible (e.g., adaptive reuse such as hotel-to-apartment conversions, subject to local approvals).
As a vertically integrated development, construction, acquisition, and property management firm with over 17,000 units currently in operation, DLP Capital does more than buy and hold multifamily communities.
Upon acquisition, DLP Capital deploys an internal property management team to oversee everything from renovations to unit turnover. By treating a multifamily community like a living business, fund managers can potentially drive NOI growth. Since commercial real estate is valued as a multiple of its NOI, every dollar saved in expenses or gained in rent has the potential to magnify the property’s value.
Buying low and selling high as a private real estate investor
Accredited investors who invest in private real estate funds rely on disciplined and skilled fund managers to execute a “buy low, sell high” strategy.
At DLP Capital, that approach aims to mitigate risk by acquiring multifamily assets below replacement cost and driving appreciation through active, hands-on management. Passive investors who allocate to a DLP Capital-sponsored fund can benefit from this rigorous underwriting and operational expertise while participating in potential upside.
Explore the investment strategy behind the DLP Housing Fund.