Most value-add investors chase the same distressed properties, bid against one another, and then wonder why returns compress. Garrett Caplin, founder of Caplin Capital and a family office principal, has built a $40 million real estate portfolio by finding value where others are not looking. After more than a decade investing across real estate, private equity, private credit, public markets, and crypto, Caplin has learned that the best opportunities rarely present themselves as obvious distress.
The first mistake many value-add investors make is limiting their search to clearly distressed assets such as foreclosures, deferred maintenance, or tenant turmoil. These deals attract intense competition. By the time a property is labeled distressed, multiple buyers are underwriting it. Pricing reflects that demand, and returns shrink accordingly. Caplin looks for different signals. Under-market rents that suggest an owner has not kept pace with the surrounding neighborhood. Ineffective property management that suppresses occupancy or drives turnover. Zoning conditions that allow density or use changes. Operational inefficiencies that inflate expenses without adding value.
“Value-add isn’t just distressed properties,” Caplin explains after identifying a small multifamily asset that other investors overlooked. “It’s about spotting hidden potential, under-market rents, poor management, or zoning opportunities. You win by seeing what others miss.” That deal illustrates the approach. The property was not distressed. It was underperforming. With modest upgrades and operational improvements, Caplin’s team increased net operating income by 35% in under a year. The asset was not broken. It was mismanaged. That gap is where value-add returns are created.
Creative Capital Creates Competitive Advantage
The second breakdown occurs in financing. Many investors default to traditional bank loans because they are familiar. Conventional financing, however, is often slow, restrictive, and unavailable for properties that require meaningful improvement. By the time approvals are secured, the deal may be gone, or the economics may have changed. “Many investors miss deals chasing traditional bank financing,” Caplin notes when discussing a multifamily acquisition that required speed. “At Caplin Capital, we use private credit, mezzanine financing, and creative structures like seller financing. That flexibility allows us to move quickly.”
Speed is a decisive advantage in competitive markets. While traditional buyers wait weeks for bank approvals, Caplin can close in days using private credit or structured seller financing. Mezzanine capital fills gaps that banks will not fund. Each approach unlocks opportunities that would not otherwise pencil.
Underwrite the Exit Before You Underwrite the Deal
The third principle is exit discipline. Too many value-add investors focus on acquisition and execution while assuming liquidity will be available later. When market conditions shift, cap rates expand, or buyer demand softens, they are left holding assets without a clear path out. Caplin approaches underwriting with the exit in mind. “Every acquisition should start with the end in mind,” he emphasizes. “Whether it’s a refinance, a sale, or a conversion to rentals, your exit strategy drives upside and mitigates risk. Liquidity is never guaranteed.”
This means evaluating multiple exit paths before buying.
Can the property support a cash-out refinance after stabilization?
Is there proven buyer demand in the submarket for stabilized assets?
Could alternative uses, such as condos or short-term rentals, create value if the hold period extends?
The strongest deals offer several exit options. The riskiest depend on one outcome going exactly as planned.
Vision, Structure, and Discipline
Value-add real estate rewards investors who see what others overlook, structure capital creatively, and maintain exit discipline even when markets feel overheated. Caplin’s $40 million portfolio was not built by chasing distressed listings or relying solely on bank loans. It was built by identifying hidden value, moving quickly with flexible capital, and never acquiring an asset without a clear understanding of how to exit. “Value-add real estate is about vision, structure, and discipline,” Caplin concludes. “Done right, it’s one of the most powerful tools for long-term wealth creation.” The challenge is that most investors optimize for only one of those elements, then wonder why returns fall short.
Connect with Garrett Caplin on LinkedIn for more insights.
