Apartment Buildings? Pinon Nuts? Dude...who cares?

Greetings from the pinon nut capital of the world…Cedar Crest, NM.  Not really the pinon nut capital for the world…but…I wonder if there is such a thing.

During the first phase of my home remodel, the construction workers would collect pinon nuts during their lunch break. Funny to watch a handful of guys crawling around the ground picking up nuts.  I never even paid attention before.  Now…when I am walking around outside talking on the phone, I will take a seat…and start cracking shells and eating nuts….they are everywhere.

APARTMENT BUILDINGS

Anyway….Let’s talk apartment buildings (Mutifamily a.k.a. Residential Commercial Real Estate). I remember my very first multifamily asset was a triplex in Albuquerque, NM.  I still have it! Like any commercial property or even residential, with the right property management and the right asset management in place, owning multifamily is a wonderful thing.  Without the right management, it can be…and probably will be a NIGHTMARE!

This is the first post in a series that will highlight the different types of properties available to investors. The posts are an overview of general information. As with all investments, you should properly research the opportunities to determine whether they fit your portfolio.

What is “multifamily”?
Simply put, a multifamily building is one meant to house more than one family in individual units. This can include a wide variety of configurations from individual rooms with communal facilities to multiple large apartment complex buildings housing hundreds of people.

What Do I Need to Know About Investing In Multifamily Properties?
Multifamily properties can be a very efficient way to build your wealth, but you need to do your research to find the right opportunity for you. Here are some basics to consider when determining whether to invest in a multifamily property:

• Are you going to manage the property yourself, hire a property manager or hire a management company?

• What occupancy rate will you need to secure and maintain your financing?

• What plan will you implement to prevent low occupancy rates?

• If it is an existing building, when do the existing leases expire?

• What changes will you need to make when implementing your leases once the existing leases expire?

• How much notice must you give according to your state laws about changes to lease terms?

• How do the units compare to other units in the market place? (i.e. will you need to make substantial repairs or upgrades?)

• How do you plan to retain existing tenants?

• How do you plan to attract new tenants?

• What expenses can you pass on to tenants to generate greater cash flow?

• What upgrades can you implement on a cost effective basis to attract higher caliber tenants and generate greater cash flow?

What Are the Cons To Owning Multifamily Properties?
While multifamily properties can be quick income generators, there are drawbacks to owning this type of property. With multiple tenants, you need an efficient way to track payments, late fees, application fees, maintenance calls, and all other aspects of property management. Also, not all multifamily tenants renew their leases, which means the paperwork associated with bringing in new tenants and vacating units can be continuous. Hiring a management company or your own property manager is an expense that deducts from the income you take home. Additionally, multifamily spaces are those where people live. This means that the usual “wear and tear” of a space is greater than that of an office building where the main activities are “low repair” like people working behind desks. This means that you will need to repair and replace fixtures and appliances more quickly.

In Conclusion
Multifamily properties are a common addition to many investment portfolios. If you are considering investing in a multifamily property, take the time to tour other properties in the market and look at each building’s performance. And, as always, if you have questions, contact the experts at The Real Wealth Company.

Until next time…..rob