Current state of investing in small multifamily units?

Question

Hello,

My husband and I are considering getting into real estate investing with a small multifamily unit (duplex or triplex)but I'm concerned  about how many units are available for rent in the areas we're considering (Layton, Ogden, Salt Lake City and town in between).  I know that there's not much cash flow but I'd like to at least be assured that we'd have renters to cover our expenses.  What are people's thoughts about getting into multifamilies in the Salt Lake City to Ogden area?  Also, is it better to buy a place that already has tenants?

Thanks so much,Janice

Alecia Loveless · Answer

@Janice H. Hi Janice, I’ve bought about 10 properties over the past 5 years all with tenants in place.

I’ve only had one building where this ended up not being a great situation. It was a duplex and the tenants were related to each other. After the first month owning it they always paid late on both units. It finally got so bad that it would be the 27th of the month before I could get the rent from one side.

I ended up having to sell the property due to a maintenance issue I couldn’t resolve. It needed a fire escape to the 3rd floor and I didn’t feel comfortable holding onto it knowing there was a safety risk. I did disclose that the tenants typically paid late but that they always paid by the end of the month.

Personally when I buy a building I still prefer to have tenants in place. Although it is not typically a loan requirement with the lender I use. They will still calculate the DTI ratio based upon estimated rents.

Seth McGathey · Answer

I can't speak to your markets, I can only speak to my market of Milwaukee. But generally, small multifamily does not have to be as worried about the macro economics. As long as the population is not shrinking in those cities, you should be fine. It is a whole other thing if you were trying to fill a 50 unit building.

As far as existing tenants, people can go either way on that. Some people like to know there are tenants in already so that they don't have to worry about that aspect. But probably the more common stance is that existing tenants are an additional risk. You are stuck with them whether they are good or not, whether they pass background and credit checks or not. You don't have the same control as you do with a new self vetted tenant. And sure, if they don't pass your checks, you can evict them, but that can go south sometimes. You also have to deal with if their rent is below market or at least below what you need it to be. Which generally it will be, because the former owner, almost certainly was paying a smaller and cheaper mortgage than you will be.

But overall, the best thing is to get in the game. As long as you have ran your numbers and are confident that you ran them conservatively, you do the proper inspections, and you have the reserves to weather some storms if anything does go wrong, then you will almost certainly benefit from whatever deal comes out of all that work.

Best of luck!

Janice H. · Answer

Thanks so much, for your advice and suggestions, Patrick!

Patrick O'Sullivan · Answer

Hi @Janice H.,

Great to see you're exploring small multifamily investing—duplexes and triplexes can be a smart way to get started, especially in growing markets like the SLC to Ogden corridor.

You're right to be thinking about rental demand. One thing that might help is checking local vacancy rates through resources like the U.S. Census, HUD, or regional housing authorities. You can also look at rental listings on platforms like Zillow, Apartments.com, or Craigslist to get a pulse on how quickly units are renting and what average rents look like in your target neighborhoods.

As for buying a property with tenants in place, it really depends on your goals and risk tolerance. On the one hand, having tenants already there can mean immediate income and less downtime. On the other, you’ll want to carefully review the lease terms, payment history, and whether rents are at market rate. Sometimes inherited tenants are great, other times they come with headaches—so thorough due diligence is key.

If the property looks solid, the numbers make sense even with conservative estimates, and you’re financially prepared for a few bumps in the road, then getting started with a small multifamily can be a solid long-term play.

Wishing you the best as you explore your options!

Charles Clark · Answer

@Janice H.Hi Janice, great questions! The SLC to Ogden corridor has strong rental demand due to steady population growth and a solid job market, so vacancy risk is generally low. Multifamily properties can be a smart long-term play there. Buying with tenants can provide immediate income, but be sure to review leases and tenant history carefully. Best of luck as you get started!

Mackaylee Beach · Answer

To assess the availability of rental units and the demand, you might want to look at local market reports, vacancy rates, and rental trends. Connecting with local real estate agents or property managers can provide valuable insights into the current market conditions.

Regarding your concern about cash flow, it's important to run the numbers carefully. Make sure to factor in all potential expenses, including maintenance, property management fees, and unexpected repairs, to ensure that the rental income will cover these costs.

As for buying a place with existing tenants, this can be advantageous because it provides immediate cash flow and reduces the time and effort needed to find new renters. However, it's essential to review the current lease agreements, tenant payment histories, and any obligations you might inherit as a new landlord.

Overall, investing in multifamily properties can be a rewarding venture if approached with thorough research and planning. Engaging with the local real estate community and possibly seeking advice from other investors can also help guide your decisions and set your investment on the path to success.

Current state of investing in small multifamily units?

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