The Multi-Family Myth | Pyramis Company Pyramis Company

The Multi-Family Myth

 

Investing in real estate can be a good and safe choice for any San Antonio investor in the long term.  Protecting that investment by attracting long-term, high-quality tenants will pay dividends.  That is why it is so important to make sure that you are making the right investment.

We see a lot of the do it yourself (DIY) investing sites pitching the idea that multi-family is the most sound real estate investment and that everyone should be doing it.  They have lots of fantastic cap rates and ROI numbers that seem to back up their theories.  Because of this, many investors look to purchase small multi-family properties (duplex/fourplex) when entering the market for the lower cost of entry and supposed higher ROI.  However, these rental properties have their own risks that too many of these articles fail to mention, and our advice is buyer beware – make sure you actually know what you are getting into before purchasing a small multi-family property.

You should always consult a professional who is well versed in property management and the local rental market before purchasing investment real estate.  A professional company who both specializes in property management and is truly vested in their clients’ best interest shouldn’t recommend these types of properties to new investors.

Tenants

Renting in a multifamily property is much less expensive than renting a single family house.  But, that means that it also attracts rental clientele who may not qualify based on our normal qualifying criteria.  This creates a smaller pool of potential renters, which also may cause units to take longer to rent.  These types of dwellings often house lower-income tenants, meaning it’s less likely that you will see your rent come in on time every month.  Chasing down rent is a time-consuming activity, and the outcome is never guaranteed.

Turnover

A younger and lower income rental clientele is more likely to move more often – they may change jobs more frequently or move to lower-cost housing.  It’s likely that you will spend some time trying to find the right renter. An empty unit is a unit that is costing you money. You will deal with upkeep and repair costs more often as a quick “sprucing up” may be in order before your new tenants move in.  Constantly upgrading your property for the next tenant will be costly for you.  And a unit sitting open for months means you may need to reduce the rental price or make further improvements to make it a more enticing place to live.

Move-in

Why would someone move into a duplex or fourplex and pay more for less?  Apartment properties have various amenities like pools, clubhouses, dog parks, and work out facilities to offer their residents that smaller multi-family properties don’t typically have.  Small multi-family properties also generally offer fewer move-in specials and higher security deposits than apartments, making a move-in more costly, therefore more difficult to attract renters.  Keeping your units full is the name of the game when you have rental property, and enticing good renters is part of it.

The Property

Compounding these issues is the fact that there really aren’t many small multi-family properties in the San Antonio market that we’d recommend purchasing.  The small multi-family properties in our market are either in undesirable locations, have become undesirable properties, or will become undesirable.  Many are built as large communities of 30-60 buildings, mostly sold individually.  When you have fourplexes, 30-60 buildings is 120-240 units worth of tenants.  What you end up with is 30-60 different owners, each with their own standards of management (or lack thereof).  The area tends to go downhill pretty quickly.  Where we’ve seen positive opportunities are installations of 2 or 3 of these properties in a nicer area.  Demand by qualified tenants is higher and they tend to take better care of their units.  These are going to be higher-priced properties, but they’re still attractive to quality landlords.

Purchasing rental property as part of your investment portfolio is a smart option, but as with anything, it’s good to make sure you are weighing all risks.  Investors are often drawn to small multi-family properties as they typically look great on paper and may have a lower cost of entry, but may cost you more in the long run due to a number of factors.  Be cautious and make sure to hire an experienced local San Antonio property management company to help you identify and protect your investment.

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Categories: Investors, Property Management

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