For most commercial developers, their first entry into the industry tends to involve a single property that is let to a single tenant. This is generally a good way to begin ventures into property investment; start small, then build up.
For most investors, the “build up” stage involves a move into multifamily housing. This means letting to more than one tenant, either on two or more different properties, or by acquiring an apartment block and letting individual units. When an investor has mastered single lets, it’s easy to think this isn’t going to be that much more difficult– but it can be.
Getting multifamily housing developments right requires application to a number of different concerns. If investors can navigate these, then they should be able to continue to grow their portfolio and benefit from the increased profits this produces.
#1 – A single unit is better than multiples
If an investor is new to multifamily developments, then they are best to opt for a single unit– i.e. purchasing a small apartment block or condo development, rather than two separate properties. A single development allows for a streamlining of resources and focus, as well as only having to deal with documentation — such as property rents and taxes — once.
#2 – Detail is everything
When buying a unit or property that is already let, investors need to know everything about the tenancies that they are inheriting.
- How long are the tenancies for?
- How long has the tenant been living in the building?
- Does the tenant have any history of rental arrears?
- Does the tenant have any history of problematic behavior?
- You will also need to see documented proof of all rent payments a tenant has already made during their lease, even if these date back years.
Investing in a property with an existing tenant may seem like the fastest route to easy profit, and it can be, but only if investors always obtain all of the relevant paperwork.
#3 – Balance finances carefully
Multifamily properties are a beneficial way to increase return on investment, but they are also more costly to run. The more tenants an investor has, the higher the chances that they will experience a problem tenant, rent arrears, and defaults. A high level of cash reserves are required to cope with these problems– as ever with property investment, those investing should plan for the worst while hoping for the best.
#4 – Be extremely cautious
If an investor finds a multifamily property that is a great deal, they can be tempted to leap in with both feet– even if they have no experience of managing multifamily developments in the past. It’s vital to gain experience with managing two lets before trying to manage more than this, so investors would be wise to start slowly, then build up from there.
In summary. . .
Multifamily properties can be an attractive route to increased return on investment, but investors have to be aware of the factors above if they are to maximize their revenue with a move into this sector.