Pros and Cons of Multi-Family Investing in St. Louis

I am a big proponent of any type of passive income stream that builds wealth.  I have tried a lot of them and learned a lot in the process.  In this blog post, I will review some pros to bring to light my initial attraction to multi-family investing and then the cons and why we decided against using this investment strategy. We use multi-family to describe a structure with multiple units whether that be a duplex, townhouse, condo, or apartment building.  The more you know about different types of investments the better decision you will make when it comes to real estate investing.

Pros

One Roof + More Doors

When buying a smaller, duplex or apartment building, you have a much higher upfront cost with the long term hope of rarely having 0% occupancy rate with multiple units. You will always have some sort of income coming in while you work to fill all of the units.  More “doors” per property means more checks coming in.

Repair Costs

Your repair costs for big ticket items like a roof can be lower when you have multiple units. Fixing a roof on one multi-family can affect multiple tenants and get you more bang for your buck.

One Stop Shop

You have one property to deal with coordinating repairs, maintenance, lawn work, utilities, etc.  You also only have one property that houses many tenants so checking up on the property is easier.

Cons

More Tenants, More Problems

Your phone will ring more. You’ll have more rent checks to chase down, more neighbor disputes to mediate, and more small repairs to make. (More sinks to clog, more windows to break, more tiles to crack.) You must figure out if the additional hassles are worth your time and energy!

Turnover

Statistically, turnover is much higher.  Tenants are in closer proximity which means that there are bound to be more disagreements over things like noise, parking, tidiness, smells, the list goes on. Regardless of how good your screening process is things are bound to occur.  This means that you will be paying more in cleaning fees, new carpet, new locks, paint and general fix-ups. You will have to spend more time interviewing and screening tenants and are more likely to have to deal with the eviction process.

Harder to Get Financing

Banks don’t lend in the same manner for multi-family homes. Using traditional financing isn’t usually an option unless you plan on occupying one of the units in the building you purchase. Investors often secure private loans or are able to pay in cash.

Tough to Resell

Reselling a single home will be much easier than selling an apartment building or a multi-family. There is a much larger market for a single family home then there would are for multi-unit properties. Fewer people out there are looking to invest. You will need to have proof of the income the property generates in order to be able to persuade a prospective buyer at the price you want. Make sure you always keep proper records showing what a great value your property is!

In the end, we ultimately decided that the work was not worth the reward with multi-family properties with the model we wanted to create. We wanted to create a system that produced the maximum amount of return for our investors with the least amount of headache and little turnover.  We wanted to create a long-term living situation for our tenants where they could find their forever home which is why we gravitated toward single family homes and away from the multi-family model.

Jimmy Vreeland
Principal – Joint Ops Properties

 

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