Thinking about getting into multifamily property management? We’re here to help! Whether you’re an experienced property manager who has previously only handled single-family properties or you’re looking to break into real estate investment for the first time, we’ve got you covered. We’ll walk you through everything you need to know about getting started in the multifamily business. Let’s take a look at some of the most common questions new investors have:
Why should I invest in a multifamily rental property?
Multifamily properties are great for a couple of reasons. For one, having more than one unit in the building means you’ll have more than one revenue source each month. That means that multifamily properties have the potential to bring in a larger income for you than single-family properties — maybe a much larger income, depending on the number of units and what you can charge for rent in them.
Another appealing point about multifamily properties is that they almost always appreciate in value over time. That’s not necessarily true of single-family properties, whose values are much more subject to fluctuations in the broader real estate market. What does that mean for you? It means that multifamily properties are a much lower-risk investment, which is great news!
Are there any drawbacks to multifamily properties?
The biggest drawback to investing in a multifamily is probably obvious: simply put, more units means more work. Maintaining a larger number of units, plus the common areas that usually come with multifamily properties, requires greater effort and often necessitates having a larger staff to handle all the work. It can be a lot to handle if you don’t have previous experience with multifamily management.
Really, though, this shouldn’t put you off of investing in multifamily properties if you’re interested — you can handle it, and the potential for greater revenue is worth it. It’s just good to be prepared for the fact that multifamily management tends to be a more involved task than single-family management.
Are there any especially important factors to consider when choosing a multifamily property?
Two of the most important considerations to be aware of are the property location and the asset class.
The best location for a multifamily property is in a desirable, growing area. This will allow you to attract more potential residents and possibly allow you to charge more for rent. Trendy areas in and around major cities tend to be the very best in terms of sustained growth.
Asset class is a concise way of communicating several qualities of a property. The three classes are A, B, and C, with A being the most “high-end” of the group. Class A properties tend to be new and relatively luxurious, while Class C properties are generally older and more dated and Class B properties fall somewhere in between.
Each of these classes of properties has its own advantages and disadvantages. If you acquire a Class A property, it’s coming to you in a highly-desirable condition, and that means that it likely won’t need any major renovations in the short term. You’ll also probably be able to charge a relatively high price for rent right away, and the overall risk with these properties is relatively low. On the other hand, though, acquiring these properties usually requires a larger up-front investment, and charging high rent prices right away leaves less room for growth in the future.
Class C properties, by contrast, often need renovations right away and aren’t generally as desirable to potential high-income residents, which makes them a riskier investment. The upside, though, is that if you’re willing to invest time and money, the growth potential at a Class C property is great. Class B properties, as you might expect, are situated between Class A and Class C properties in all of these areas.
The right class of property for you depends on your goals and ability and willingness to invest. Having knowledge of the differences between the property classes, though, will allow you to make an informed decision about any property you might consider purchasing.