Investing in multifamily properties in areas with bad winters

86 Replies

Hi Everyone!

I am originally from Erie, PA. For those of you who are not familiar with the area, the winters are pretty harsh. Extremely cold weather and LOTS of snow. I am considering what to do for my first investment property. The only criteria I am 100% certain on is that I want my first investment to be a multi-family property. Since I am a beginner, investing in a multi-family property in Erie seems like my best option because the prices are more reasonable and I know the area extremely well! For those of you who have invested in areas with harsh weather, what are some tips you have? Also, what are the challenges that you have faced?

Just make sure you do your due diligence, and set your prices high to make sure you can accommodate an expensive winter with snow removal and potential repairs. Additionally, probably worth raising rents higher and including heat, and getting WiFi in the building and installing WiFi thermostats to verify remotely temp is high, ive found this stops frozen pipes from happening. Lastly, emergency / cold weather manual or notice goes to all tenants on what to do , when snow removal is coming, keep temp extra high to prevent freezing pipes. 

Good luck, 

@Victoria Coleman

"Cold and lots of snow" is a matter of perspective.  Our winter is just starting so we are still seeing highs around freezing, but come January our highs will be -20 to -15C with lows reaching below -30C.  Our average snowfall is comparable to Erie, PA (around 2.5m / ~8ft).  We've already had a couple of small snowfalls ... just to remind folks to mount their winter tyres. ;-)

You simply add snow removal to your operating plans.  Hire an insured plough service to clear the parking & walkways and sand when necessary.  Depending on the location (i.e. prevailing winds) and roof style, you may need to have the roof shovelled in high snow years ... or in those wild winters where you received rain after 5-6' of snow are down.

When rehabbing a building in an environment with *real* and prolonged winter, it pays to focus on air sealing and increasing the insulation of the building envelope.  We have properties were the energy efficiency has been improved by more than 50% (over 70% in one instance).

I've got some multi-family properties in Erie. In my 4-unit the pipes froze on one unit (single-digit temperature during the nights during that time). The pipe's exterior wall was a patio with only a screen door. I had a more substantial door installed and that stopped the pipes from freezing (along with having my handyman replace the old insulation around the pipes). 

We have several here that have suffered from frozen pipes, whereby the majority were installed either under poorly insulated crawl spaces or inside an outside wall?? So a lot of Pex & frustration redirecting plumbing lines.

We have had to replace many windows, doors & heat trace gutters & lower grade roof slopes. Then there is the constant complaints about the contract snow plowing guys, salt on walkways especially clearing the sidewalks to avoid city citations.

It's a lot of fun but rents are high & so far it's been a great cash flow. 

Good luck...

@Victoria Coleman depending on how it is set up yes. I think @Roy N. makes valid points too. Multiple ways to skin a cat. If you are always in peril about what will / might happen, you’ll never buy. Dive in, you’ll live :) 

Originally posted by @Victoria Coleman :

@Scott Morongell Yes, I just relocated here a few months ago. My original plan was to invest here. However, the more research I do, I’m not sure if it will be feasible for my first investment.

 Not feasible here in Charlotte? What factors made you decide that?

@Scott Morongell I want my first investment to be a small multi-family property. Either a duplex or triplex, which I haven’t found many of those for a price that will work for me. Also, trying to get a loan here since I just relocated will cause some roadblocks, as opposed to Erie, I already have a good idea of the route I want to take as far as financing. I also know more people in Erie and some of my immediate family members still live there which will make this process run a little more smoothly. I think investing in an area that I am familiar with will help me to get my feet wet for my first investment. Especially while I still continue to make connections in Charlotte. I haven’t counted Charlotte out completely, but I am going to keep my options open.

Originally posted by @Victoria Coleman :

@Karl B. Has it been easy to manage the property from CA? One thing I’m a little worried about, is finding people who are reliable and who I can trust to manage the property effectively.

I have family in Erie and so it's manageable and my tenants are happy (much happier than prior to me buying when they had "slum lord" property management). If you have a parent or sibling local to Erie who can assist you from time to time (to show a vacant unit or let a tradesman into a vacant unit) you won't need property management (and Erie is notoriously bad for property management). I haven't had a call from a tenant for while (knock on wood). 

When I'm in town I'm doing preventative maintenance and I do all upgrades and repairs when a unit is vacant = a much less chance of things breaking once a new tenant moves in. And if I need to have a repair done I call one of my tradesman and he takes care of it.  

@Karl B. Thank you so much! This was very helpful. I actually have parents and a sibling still in Erie. My Dad looks after my brothers investment property. They’ll be in Erie for a few more years so that gives me time to build connections for once they decide to move.

@Victoria Coleman population trend is towards moving south. Charlotte and Raleigh are two hot areas. I am a big advocate of investing near where you live. I would consider why prices are less in Erie and think about whether long term that is the best area for job growth. Cold weather adds challenges that come with snow, ice and high heating bills.

Originally posted by @Victoria Coleman :

@Pat L. Thank you so much for the insight! Do you do most of the work yourself? Or do you have a team in place whereby you can call them to handle repairs and other concerns?

we now have a live-in maintenance guy but most of the initial work we did ourselves.

 

@Victoria Coleman I think I saw a post on Instagram from Grant Cardone saying he doesn't buy where there is snow, which I thought was interesting!

At the end of the day, I think so far there are specific market drivers in the submarket or specific location I think you should be fine. 

There are the 3 metrics I tell anyone looking to buy small multifamily: 

1. Crime = Lowest

2. Rent To Value Ratio >= 1%

3. Renters To Owner Ratio > 50%

Feel free to let me know if you have any questions.

We have some pretty harsh winters here too.  With snow and frigid temps below zero through most of Jan and Feb.

The one thing to keep in mind is you will want your leases to start and end in the spring or summer preferably.  As you get closer to winter it gets a little tougher to find tenants.  If you buy a 4 plex you might look at contracting out your snow removal.  However if it's just a duplex you could probably have your tenants be responsible for it.  Have never had a problem with that for our properties.  With a multifamily you would be paying the water and electricity and that can add up.  Some I have seen eat the costs as owners and others I have seen raise the rent slightly to cover some of the extra costs.  That's something you will have to look at and compare how the rent compares to others in the area.

Don't let the weather deter you.  No matter if you are in Alaska or California everyone needs a place to live.  There are renters for almost any area and climate.  If the properties are taken care of well on the inside and in a decent neighborhood you shouldn't have much trouble getting renters.  We have never had an empty house yet going into or out of winter.

I don't think you should be discouraged by an area with hard winters in terms of the cost for snow removal. Here in Prince Edward Island, Canada cost is usually fixed for the season no matter how much snow we get (10 ft normally and 18 ft one bad year. For a single driveway on a single family to fourplex its usually around 350-450 per season. You can plan for this the same as for lawn maintenance. The variable you should be concerned about is heating which can be 1000/month for even a single family. You need to know the worst case scenario for the building you are going to heat if your first purchase is in the late fall because heating can lead to negative cash flow that may hit you hard starting without much cash. You need enough margin to weather the storm and more than recoup costs in spring/summer. In my opinion, if you are getting an older, larger building, lean towards options where the tenant pays for heat, and if not you will have to charge much more for rent.

@Brent Paul Thank you so much! I just started doing my research on multifamily properties so I haven’t done research on what renters will be responsible for. You mentioned that I will be responsible for the water and electricity. Is that the case for all multifamily properties, that the owner must pay for water and electricity?

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