Thursday, September 16, 2010

Hedge your Multi-Family Bets

When I first started investing in real estate one of my mentors took the time to explain the value of purchasing multi-family investments rather than single family homes. As a result, most of my property investments are multi-family. If you think about it for a moment, it makes more sense than purchasing a single-family dwelling for investment purposes. The idea is to hedge your investment and to keep the cash flow in your business positive. Even though I have been lucky and experienced a rather low rate of vacancies over the years, when I do have an empty unit, the other unit(s) in the building creates a buffer and protects me from taking a complete loss on the property for that period.

By choosing multi-family properties as an investment you gain in other ways too. It is always good to have another set of eyes to watch over your property and tenants like to report to you what is going on especially if it is negatively affecting them. One time, I had a young couple and two children living on a top floor unit and just above them was the attic. They decided to try and save a little money and temporarily had their mother living up in the space. It took a noise complaint from the other tenant in the building to bring this to my attention. There are so many issues here that could be very negative for all, but my main concern is for the safety of those living in the house. In the attic there is only one ingress and egress (only one way to escape – the stairwell), so in the event there is a fire they would be unable to escape and there is no fire alarm in the attic to warn the habitant in the event of a fire. Having another set of eyes looking over your property is a huge advantage and can help to reduce your liability.

It helps to maintain a good relationship with your tenants. If you show an interest in their well-being and take good care of the property, for the most part, in turn they will take good care of it too. When consulting with other landlords and managing agents in the past, I have heard and witnessed the mis-handling of tenant’s complaints. I have also seen poor communication skills from landlords when tenants are late with rent. Both of these occasions are opportunities to be firm yet fair. What I have found is it is always helpful is to talk positively, be courteous and communicate via e-mail stating your position. This way you always have a record of the communication and you can write in a manner that is without emotion. Being emotional in your response will usually backfire. The last thing you want to do I create a vindictive and hostile atmosphere.

You can typically gauge what is happening with the tenant and with your assessment outline your actions and then follow through. This is true whether you are handling a simple repair or a more complex matter of a potential eviction. Also, take a few moments to understand their situation and determine their intent. By listening to their situation you will benefit greatly and it doesn’t hurt to be genuinely concerned, just as long as it doesn’t cost you money. Believe it or not, niceties including please and thank you go a long way and so does hope you had a good weekend or take care. If you create a good relationship and choose multi-family investments you definitely improve your position and reduce your liability.

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