Do you prefer vacant or occupied multi-family properties?

Question

Do you prefer to buy multi-family properties that are vacant, or occupied, and why? I've had a lot of difficulty with two of the tenants I inherited in my triplex. Thinking next time I would prefer the property to be vacant, but worried about having difficulty financing.

John Corey · Answer

If you are talking about a vacant triplex, fine. If you are talking about a vacant, 100-unit property, the cash flow impact would be very painful.
Let's focus on the real issue. What problems did you have with the two tenants? Maybe there is a better way to onboard the existing tenants and get everything clear before you become the owner (estoppel agreement with each tenant)

Charles Carillo · Answer

@Sheena Lee

Occupied multifamily will always be easier to purchase with permanent financing out of the gate but the more value you create, the more you will make. A vacant property will require special financing from the beginning which you can refinance out of once you have stabilized the property. In all, the more work you do, the more profitable the deal usually is.

Jake Marmulstein · Answer

Assuming we are talking about smaller properties of at most 3 families, I would prefer to purchase a property without tenants occupying it. While it might be a hassle to find new trustworthy tenants with a steady income when dealing with multi-family properties, it’s better than the alternative. If you buy the property with tenants already living there, you are gambling as to whether or not they are good tenants. Some might have difficulty paying and cause problems. In many cases, even if you can lawfully evict them, some tenants can still refuse to leave. On top of that, it will be much more difficult if you wish to renovate your newly bought property to increase income. However, occupied properties have many benefits as well, and you could attempt to uncover potential challenges during the due diligence period. This generally applies to most deals unless it is a larger multi-family, where searching for tenants to occupy all the units would take up too much time and negatively impact cash flow; in this case, I would prefer the property to have the majority of its units occupied. On top of that, as @Charles Carillo mentioned, occupied multi-family properties are much easier to purchase with permanent financing thanks to the assurances from the steady cash flow of a property.

David Smith · Answer

I love vacant ones.   I pick my own Tenants.   unless it is huge apt building, then the management will take charge.

Anthony Wick · Answer

@Sheena Lee

What month is it? I bought my last duplex empty, in December, in Iowa, in the coldest winter in over 100 years. It stayed empty for longer than I’d prefer.

I’d prefer to get a good deal on a fully occupied property, at or above market rate rents, with tenants that are amazing and treat the place like they own it. I just haven’t found that place yet.

Brandon Ingegneri · Answer

It is all property and deal specific.  I have bought in both scenarios.  If there are good, long term, respectful tenants who pay a rental amount where you are cash flowing, that certainly is helpful.  If you are getting into a project house that is occupied, there can be difficulties associated with that.  If you inherit "bad" tenants, we all know what that can be like.  Its one of those things where I do not believe one size fits all.

Hadar Orkibi · Answer

@Sheena Lee it depends on the property and the size.

if its a small property that could be founded with cash or large down payment that is required rehab then possibly vacant so we can get in to it and do the upgrades.

if its a larger property then i rather it been 70% occupied at least.

ONE THING TO CHECK: is what type of occupancy is it, economic of physical?

if you have people there that are not paying rents you sure to have additional costs to evict them.

That could cost you thousands out of pocket.

Bryan Mitchell · Answer

@Sheena Lee I was like you preferring occupied. However my triplex I bought in 2016 had two bad tenants. The property management company had to get rid of them. Things are better now.

Greg Scully · Answer

@Sheena Lee - Occupied.  But I don't self manage, so I'm more insulated from the resident aspect.

Do you prefer vacant or occupied multi-family properties?

Most Popular Reply