Posted 14 days ago

Risks Investors Face In Multifamily Properties

The promise of high returns in multifamily properties entices most investors toward them, however, there is also a large potential for failure for going all-in on these properties.

Understanding the risks in a multifamily property is merely one of the steps to making bigger and better deals in them for the future.

Here are some risks an investor faces when making a deal in multifamily property:

Underestimated Expenses

It begins and ends with money matters.

One of the great risks of investing in a multifamily property is when expenses climb higher than expected, it can happen. The fees can include mortgage, insurance, maintenance, and especially taxes when the bill comes due.

The solution to mitigate this? Calculate. Always make sure you’re not biting off more than you can chew before making the deal to acquire this particular property. It requires some serious math but if it means being able to make a reasonable choice in choosing a multifamily building, then so it must be done.

Terrible Tenants

Tenants will be what keeps your multifamily property afloat. But, as any crew to a ship, without cooperation, your boat is doomed to sink.

Bad tenants are the apples that spoil the bunch, or to put it bluntly, what will ruin your profitability in a multifamily property. Tenants who refuse to pay rent, cause trouble within your building, and constantly create conflict between you or your other tenants living within are always an upsetting and frustrating risk.

Proper screenings and clear grounds or rules when picking out tenants will help mitigate this risk on most degrees. Don’t discriminate but also don’t pick out a tenant just because of how much money they may seem to offer for your property.

Lack of Tenants

On the flip side of the same coin, another risk involving tenants is not gathering any tenants at all.

Just because you buy out a multifamily property doesn’t mean you’ll be getting any profit immediately. That being said, tenants are what give your multifamily property life, and without any people living in your building, you won’t be raking in any money.

Do some in-depth research surrounding the area of your multifamily property in order to know if you’re in a decently populated area or the worst place imaginable to gain profits from a multifamily building.

Choosing the wrong property

Are you certain the property you have eyes on is the right one?

You could very well be picking out the wrong property, such as a building with little to no tenant activity, or one where to condition is actually much worse than what you saw, or at least, what you thought you saw but merely glanced over. This is a SERIOUS risk you’ll face as an investor to a multifamily property.

Thorough inspections should be conducted in order to prevent this risk from ruining your investment in a building and also not strike a terrible deal as well.

Investing in a multifamily property, or any property at all really always carries its own risks.
But where there are risks, there are also rewards. And huge risks carry the possibility of big rewards.

So never be afraid to jump into the multifamily business, regardless of what might happen, you’ll always have that chance of getting more than what you bargained for!



Comments (1)

  1. Thank you for this article and your advice! I have a question about the "Lack of Tenants" section. You say, "Do some in-depth research surrounding the area of your multifamily property in order to know if you’re in a decently populated area or the worst place imaginable to gain profits from a multifamily building."

    Can you be a little more specific about what a potential investor should be researching? What statistics or data will help answer the question of whether or not a property is the worst place imaginable to gain profits?