Advantages & Disadvantages of owning Multi-Unit property

Multi-Unit properties can be a Duplex, Triplex, Quadplex or Apartment building.

NOTE: Let me just say this upfront, I am not a proponent of multi-unit properties. Many investors, usually very seasoned, find them substantially beneficial to their real estate portfolio. My experience has found them to be a headache at best but they do have their advantages. I believe REITs are a better way of dealing with multi-unit properties, (I'll get into REITs in a future post), but here are some advantages and disadvantages:

Advantages:
1) If you keep it long enough, it's equity will rise especially if you pick a great location.
2) There are substantial tax benefits to owning multi-units (very similar to the SFR rental benefits).
3) Greater land appreciation potential due to the typically larger land footprint (when compared to the SFR).
4) You can live in one of the units and have the tenant's rent cover the mortgage for you (thus living mortgage free with respect to it coming out of your pocket).


Disadvantages:
1) Typically, the Multi-Unit property will be far more expensive when compared to a SFR in the same neighborhood. This can be cost prohibitive for most beginning investors.
2) With a SFR, it is not uncommon to have the tenant take care of the yard, but the multi-unit property is a different beast. Your tenants will expect you to keep the yard well maintained, and this can be an expensive part of your overhead... ranging from hundreds of dollars a month to thousands depending on the size and complexity of the landscaping.
3) Types of tenants: In my experience, tenants who seek multi-unit dwellings can differ from tenants who seek a home in the following ways: Multi-unit tenants tend to be more nomadic (more likely to stay for shorter periods of time). Income levels tend to be less than those seeking a home. Credit history is often sub par which may account for them not being home buyers. Education levels and how that relates to income can have an impact on what the tenant is able to pay, thus making them more likely to rent an apartment than a pricier SFR. You are more likely to have to evict an apartment renter, in my opinion and experience, than someone renting your SFR.
4) Rent Control: Many cities enforce what they call Rent Control. When you own a multi-unit building, the city will actually restrict how much you can raise the rent each year (usually restricted to 3% per year but can vary city to city). This is a terrible thing for the investor because you are now limited on how much of a return you can make on your investment.
5) Systematic Code Enforcement: Many cities impose this on owners. The city basically inspects your properties every year and can fine you for problems they find whether you knew it was a problem or not. This can really add up and cost a bundle to remedy.
6) To evict or not to evict.....Many cities will not let you evict a tenant unless you can prove they have not paid their rent with substantial notice to cure the breach of their contract or prove they are involved in illegal activities. Other than the fore mentioned, you could be responsible for up to $10,000 in relocating costs and you still can't raise the rent when the new tenant takes their place! Talk about BIG government in our business....that is just ridiculous...which is why I sold all my multi-unit property.
7) Property Management is almost a must with multi-units unless you're retired and have the time to manage them yourself. Management companies can charge up to 15% of the rent plus other fees leaving you with yet another expense which will reduce your net return.

Author's Note...

I'm sorry I've been away from the keyboard so long, but I've been very busy with several projects that have commanded much of my time. I'll try my best to post more frequently. This "Blogging" is far more time consuming than I had anticipated.

I want to thank all the readers for the positive feedback. I'm glad to hear you find the blog informative, useful and educational in just the several posts to date. That was and will be my ongoing goal.