What are the downside to multi-family

Question

You hear a lot of people saying go multi-family all of the time. What are the downsides to multi-family, especially in regard to what people don't think about or know until later?

Steve Olafson · Answer

Why be looking for the downsides?  You are in the game for what reason? To make money...   You have economies of scale with apartments.

The bottom line for me is that I can buy a 200K property and make 50K off of it.  I can buy a 2M property and make 500K.

I don't look at the cashflow as a means to an end.  Cashflow is a small part of the equation.  The velocity of money is much higher when you look at all the returns that you can get from a transaction.

Aaron Howell · Answer

Selling a MF might be a downside.  You either need a buyer who's willing to share a roof with a his tenant or you need an investor.

Lexi Colt · Answer

All of these could be area specific, but....

-Depending on the size of the multifamily, you might be looking at maintaining a dumpster.

-Several insurance carriers have implemented a multifamily surcharge

-High utility bills if not separated by tenant (think boiler or water/sewer) can eat profits quicker than you'd think.

-Depending on the area, you may have more exit strategies with SF properties than MF.

Granted, my portfolio is midwest and mid-lower income, but my single families net about the same as my duplexes. Once you take into account the headache factor and that IMHO I have better exit strategies with SF - you can see why I only buy single families now.

Mike F. · Answer

Sounds like acquisition is an issue,  let's say take away the money to purchase from this and just looking at two things -

1) Cashflow

2) Appreciation

4 single family homes

or4 townhomes

or

a quad multifamily?

Joel Owens · Answer

I would say it depends on the size of the units and location of the area.

Many new investors are looking for value add. They have limited funds to start. This means they are buying at a low cost per door and putting in repairs to get rent ready to improve the cash flow.

The low costs per door the rents tend to be lower getting you a lower class of tenant for  a base.

My experience has been these people are almost like managing children. You have to cut through the BS and say PAY THE RENT on time and in full or you will be evicted immediately and follow through.

They often work 2 jobs and have a lot of drama and life issues to deal with. Many have a GED or didn't finish high school etc. If I ever went back to apartments the deal size would have to be 100 units or more so I can be hands off and I would want higher rents per door and more of college degree etc. type tenants that have stable income.

As I get older I just do not want the drama under any circumstances. All you have to do is read here on Bigger Pockets all the stories dealing with multifamily tenants  in lower rent for the area properties to see how challenging it can be. The question is if the return equals enough for the impact it causes on your life. I like to see the beach and look at the waves rolling in. I do not want to get  a call from a lower income tenant telling me all there troubles and life stories etc. Even with a PM you have to deal with these things.

Personally this is why I like retail strip centers now. It's just more my investing style and what I want out of life.

Dan Marriggi · Answer

Also, depending on the age of the home, deleading is something to think about.

Ryan Fagan · Answer

Multi family homes require exponentially more capital expenditures than single family homes. You should keep in mind that you have more kitchens, bathrooms, and HVAC systems in a multi family.  Kitchens and bathrooms need to updated every 10-20 years, and you should factor that into your analysis.

Nancy Curran · Answer

When you have a SF, once they go, you have no cash flow if you don't relet it immediately. With MF, even if someone moves out, you have less cash flow, but still cash flow. I prefer multi families, after all, I'm in this to make money. Also, once someone's stove broke and I was able to move a working stove from a vacant unit. That kind of thing is convenient. You can put in laundry in the building and make money there. The thing is, sometimes the tenants don't get along but I encourage them to call the police on each other. The police are better than me at getting music turned down and once police are involved, usually everybody starts getting along.

What are the downside to multi-family

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