Vacant vs. Occupied: Which is better to buy?

[Joshua Heller]

Apologies if this has already been discussed, but just looking to get some different view points on this.

For multi-family rental investment properties, would you rather buy something that's already occupied or something that's vacant? I can see pros and cons to both sides.

Thanks!

[Amit Sharan]

@Joshua Heller

@Josane Cumandala is right - it depends a lot on location and state of the market, even the type of neighborhood. But in general, I like to buy small multifamily properties that are either fully or partially occupied. 

First, it gives me a perspective of a confirmed current cash flow. I buy properties where I’m happy with the current cash flow. That gives me a possibility of further upside when I increase rents but assures me of a basic minimum cash flow when running my numbers for the deal.

Second, it allows me time to take decisions about the tenants and the property. I can approach each case individually as they approach lease renewal. The preferred option is to get an increase with the existing tenant. That way one can avoid vacancy and turn over expenses. If they leave, I’m only dealing with one vacancy at a time.

Dealing with one vacancy at a time also allows me to experiment. I tend to list for a little higher than the market rent. If I get a tenant at that rate, I know I can get higher rents for other units too when they come up for renewal.