Whether you’re new to the property management business, or you’re an old pro, adding multifamily properties to your portfolio can be a lucrative move. That said, as with anything in this industry, doing so is not without its challenges. Let’s explore some of the pros and cons of multifamily investing to help you get a better idea of what to expect if you decide to move forward.
Pros of Multifamily Property Management
Potential for High ROI
A property that has more than one rental unit can present the potential for significant return on your investment. If you can collect a competitive rate of rent and keep every unit occupied, you should be able to make a decent profit. The key is investing in a quality property that is located in a high-demand market.
Ability to Scale
The revenue you generate from your multifamily property can then be reinvested into the purchase of additional properties, enabling you to steadily grow your portfolio. And as your portfolio grows, so should your bottom line, which will in turn enable you to scale your team and expand your business. Essentially, it’s the snowball effect.
If you’re just starting out and this will be your first multifamily property investment, you may have the option of occupying one of the units yourself. This will save you on your personal cost of living and also make it easy and convenient to manage the property from onsite.
Cons of Multifamily Property Management
Cost and Competition
Depending on the market, you could face steep competition with other investors, both in terms of being able to purchase a multifamily at a fair price as well as maximizing occupancy once you own it. If you’re not careful, you could end up with an overpriced property that has high vacancy rates, which can result in negative ROI. Be sure to do your homework and make sure the property is in good shape and the area you’re buying in is high-demand and isn’t already too saturated.
Managing multifamily properties has its own unique set of challenges. Even if you’re a guru in other areas of property management, you may find yourself struggling with the complexity. Even the market itself is different for multifamily properties than it is for single-family or commercial. Get to know the area and its nuances before pulling the trigger.
Not surprisingly, properties with many units require more maintenance and upkeep. Whether it’s conducting routine inspections, responding to tenant complaints, scheduling repairs or one of the dozens of other common tasks, if you’re not prepared, you could quickly find yourself in over your head. Property management software can help you stay on top of these things and adjust to the increased workload. It can also make adding more properties to your portfolio easier and more seamless.
Multifamily property management can be a profitable endeavor. If you’re not careful, however, you could end up making a poor business decision that could cost you in the long run. By understanding the potential while also planning for and avoiding some of the pitfalls, you’ll put yourself in a much stronger positon for success with multifamily investment.