Posted in Blog  
  on Dec 22, 2014

Pros and Cons of Multi-Unit Properties

Multi-unit properties can range from a simple duplex to an entire complex with 100s of condominiums, apartments, or townhomes. Yet, the major aspects of owning a multi-unit property are shared throughout this range of sizes. If you've been on the fence about whether or not to venture into owning multi-unit properties, this layout of the pros and cons of multi-unit property ownership can help you make your decision.

Pros of Multi-Unit Properties
There are many financial incentives to owning a multi-unit property. Consider these two pros when making a final decision.

Higher Revenue Possibilities
It's simple math: The more tenants you have, the more rent money you make. While some property owners do make a nice sum from renting a single unit or home, these are often in areas where rent (and therefore property taxes, maintenance costs, etc.) are generally higher for everyone. Other property owners simply have a piece of property that is so luxurious or unique that people scramble to pay whatever they ask just for the opportunity to live there.

When you aren't in situations like these, yet you want to create more revenue, renting to more people is a solid option that's easier on the tenants and yourself.

For instance, if you want to make $10,000 a month from your rentals, but you only have one, it may be unrealistic to ask someone to pay $10,000 every month for shelter. However, if you had five duplexes (10 units total), with each unit paying $1,000 in rent each month, you'd be more likely to find tenants who can sustain that payment over the course of a lease, and you'd still meet your $10,000 goal.

The Ends of Lease Agreements Aren't as Painful
If one tenant is your only source of rental income, and that tenant doesn't renew their lease, you might be desperate to accept any new tenant who comes your way. You might also hesitate to evict a tenant if doing so would leave you without any monthly rental income.

When you have a piece of property on which multiple people are living and paying, one tenant's decision to end their lease isn't quite as painful, however. While the other people on the property are paying rent, you still have a steady source of income while you look for a new tenant.You can review the applications carefully and make an informed decision. Also, you can afford to evict tenants when necessary, since you'll have other rental income to fall back on.

Cons of Multi-Unit Properties
Unfortunately, there are also a few downsides to owning a multi-unit property. Watch out for these problems so they don't catch you unexpectedly after you've already made an investment in a multi-unit property.

Higher Maintenance Costs
Because things like hot water heaters, doors, and flooring are being used by multiple families each day, these items will need to be replaced or repaired more often than with a single tenant.

You can attempt to prevent this issue by buying the most high-quality, durable equipment and appliances you can afford, but this still makes your maintenance costs higher than they would be for renting out a single unit property.

More People to Manage
While more people also bring in more revenue, more people also bring more problems (potentially). When you have multiple people living on a piece of property, they are going to have different cultures, maybe different languages, and definitely different personalities. This can lead to various issues related to day-to-day living and possible problems related to usage of shared portions of the property (i.e., pool, green house, courtyard, driveway, etc.).

People may have children who pull fire alarms, relatives who choke toilets, loud parties that disturb neighbors, or even hygienic issues that can lead to infestations by pests like mice, roaches, or ants.

While good screening protocol can help prevent some of the inconsiderate applicants from becoming tenants, no screening protocol is perfect.  The more units you fill, the higher your chances that you've allowed someone to live on your property who looks good on paper, but is a troublesome tenant for you and your other tenants.

 


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