Tenants in an apartment building versus a small multifamily?

Question

I'm interested in hearing about the differences in tenants that you get in a 1-4 multifamily versus a 10+ apartment building? Let's assume they're both in a C+ neighborhood. I currently only have experience with the former and am looking at possibly acquiring the latter.

Thanks for any insight!

Evan Polaski · Answer

@Karolina Powell

Generally, I would say your tenant pool in a the same submarkets will be the same, outside of single family rentals, which by default have "more" amenities than any multifamily (no one above of below, yard space, etc).

Beyond that, I would say the actual amenities will drive more, to a point.  But there are certainly some tenants in all markets that prefer smaller properties to big, or bigger properties to small.

And, as noted above, more tenants means more chances for disagreements, but that is a biproduct of size, not directly correlated to how I read your question.

Gil Wildridge · Answer

People in a building, from my experience, chose that buildings because they want certain rental amenities and sometimes have higher expectations. They're also often not familiar with the local area (people tend to find listings for large buildings first and if they're new to the area they're usually more comfortable with large buildings). They are usually more concerned about security and are slightly less likely to have kids.

Tenants in small multifamilies are often longer time locals of an area and are choosing to live in a specific section of a city, for the schools or for a shorter commute or something. They might have worse credit depending on the owner of the small multifamily and the screening processes in place (larger buildings almost always have better screening). Because multifamilies often have proper back yards and are in neighborhoods built for families, I've at least found that multifamily tenants are more likely to have kids and often that means that they're more likely to know a couple things about home improvement and either have special maintenance requests or want to fix unit issues themselves.

But these are just my personal experiences. It's worth getting some demographic data on each kind of tenant if you're looking for a full picture, or just visit a couple larger buildings and compare the people you talk to there to people living in multifamilies that you've met or managed.

Clare Pitcher · Answer

I currently work for a property management company that specializes in 1-4 units, but I previously worked for a company that specializes in apartment buildings. The main difference is that in larger buildings, you have to manage the tenant relationships a lot more. Additionally, buildings typically have a younger demographic whose parents reach out on behalf of their children, so most of my time was spent managing the parents of the tenants versus the actual tenants. If I were you, if you have a larger sum of money to invest with, I would stay in the 1-4 unit range and look more in A or B class areas that won't need much maintenance or management.

Drew Sygit · Answer

@Karolina Powell what we've experienced in handling both is the struggle for tenant stability.

Logically, the more people you add to any given situation, the more likely it is that at least two of them won't get along:(

We've placed a new tenant in a duplex several times and had them not get along with the existing tenant. - Sometimes we lose both tenants, but often we can keep the longer-term tenant calm until we get rid of the newer tenant.

This is more difficult to do when you place a new tenant into a 10-unit building where all the other tenants have been there awhile.

The challenge with Class C tenants is they want the landlord to be a babysitter and take care of issues between tenants. We do NOT recommend falling into this trap - and it is a trap because one you start, they make it very difficult to stop.

To manage these situations effectively, we've learned to remind tenants of reported lease violations and start evictions when necessary. We've also reminded tenants that there's a limit to what we can do without police reports. So, instead of complaining to use, they need to call the police.

Emran Chowdhury · Answer

Will you manage the apartment buildings yourself or with property management? If you already have an experienced property management company to take care of the properties, then it wouldn't be that much of difference based on how they handle the properties.

Typically you get more younger generations in the apartment buildings than any multi family homes. But it depends on the size of the apartment & MFH unit and the location.

Corby Goade · Answer

How much experience do you have in management? Do you have screening processes and criteria in place? Excellent working relationships with multiple tradespeople?

It's going to be rough in a C neighborhood regardless of property type, but with MFH, you'll have higher turnovers, more expensive turnovers, longer vacancies and more interpersonal issues to deal with. Common space maintenance and upkeep.

Management is where the rubber meets the road, especially in MFH, it can be the difference between an asset performing well or completely destroying you financially.

Karolina Powell · Answer

I self manage.  Good point on the generational differences