Many buyers purchase a multi-unit property with the intention of renting out. This investment has its benefits, namely long-term profit. It is also convenient to live in one of the units while your renters give you a paycheck every month to help pay off the mortgage. However, it has some strikes against it as well. You will find that while there are many benefits to owning a multi-family property, there are almost an equal number of risks and negatives. Investing in any enterprise has its share of difficulties, so there are some things to keep in mind before you jump in. These are some of the potential drawbacks of purchasing a multi-unit property.
Will You Get the Return You Need?
Before you consider buying a property, you must crunch the numbers to see if it is right for you. You must treat it as if you are purchasing a home, in which case you need to have a few things in order. First of all, you need to know what property you can afford based on your income. Can you afford the initial mortgage? You alone will be purchasing the mortgage, so ultimately it is on you to have the right credit and income. That also means that you need tenants who will also make the right amount of income to pay it off. The best way to do this is to add how much gross income you need to receive from every unit, including the number of bedrooms. Be sure to compare it to the average rent of your area. After that, take away half for business expenses—marketing, management expenses, and maintenance. Finally, you may deduct the mortgage payment for what remains. The remaining profit will be yours, so make sure it is enough. If it is not sufficient enough, it probably won’t be worth it, unless you enjoy speculating on the market.
Location, Location, Location
Multi-unit properties just are not as easy to come by as single-family properties are. Whether you want to own a duplex, triplex, etc., you will find that it is much easier to find individual family homes. Limited location means that you do not have your pick of the best areas of town. You may be restricted to ranges that do not have a high property value and that may make an investment less attractive. If you do not mind living in a less desirable area, then this will still be a good idea for you.
Many Families to Manage
Multiple units mean multiple families to manage. While it is convenient to have all of your renters in one place, keep in mind that this will not negate the patience and hard work it takes to manage your renters. Financially, one of the biggest issues you can face is turnover. If your renters leave, you still need to pay for that empty unit. That can be more cost than it is worth for some people. With lease-lengths that usually add up to about a year, this means that every year you potentially have to replace tenants. If you have three families and they all decide to move within the year, that is three times a month you will have to fill a unit. Hopefully, this will not happen every year, but it certainly can. You will also have to manage whether or not they are being respectful to your property, the rules of the lease, and so on. This doesn’t mean that you will have to spy on them, in fact you may have many decent families, but you will still be a manager living in your own home.
Just like with a home, there will always be costs. Keep in mind, however, that you won’t just be paying for repairs and marketing. You may also cover unexpected costs. If your tenants violate the lease contract, for example, you will probably evict them. However, It is not only awkward and emotionally draining, but eviction costs become costly. You may have to deal with tenants who won’t pay rent, and so you struggle to make ends meet while you try to evict them. If they are being obstinate, you may also choose to take them to court—another costly endeavor.
While a multiunit property may seem like a sound investment, it can present a great deal of challenges. Consider these drawbacks before purchasing a property and make sure the decision is right for you.