If you’re thinking of diversifying your investment portfolio by purchasing a multifamily housing property, here are a couple of points that could help make your decision a little bit easier.
The important thing to grasp about owning a multifamily building, especially one with six or more units, is that it’s a business: If you’re thinking it’ll be a nice way to make some extra money while only having to unclog the occasional toilet, think again. There’s a lot that goes into managing a multifamily property that you don’t have to think about with your own home:
- Acquiring and Managing Tenants is Key: Keeping vacancies filled can be challenging in secondary markets with excess supply. That requires skilled and persistent marketing. We’re lucky here in the Bay Area that so many people want to live here, there is a steady supply of tenants. But just because someone wants to live in your unit doesn’t mean they’re going to be a good tenant. Proper vetting of prospective tenants is tremendously important, because the flip side is that in the Bay Area, especially San Francisco, once somebody’s got a lease, getting them out if they’re a problem tenant can be a real headache. Oftentimes it’s better to have a neutral third party such as a management company between you and your tenants. This avoids the potential for emotions getting in the way of rational actions — emotions that could land you in court.
- You’ve Got Real Competition: Because this is a business with potentially significant returns, you’ll be up against other potentially more seasoned and savvy real estate investors when vying for a good property. It’s important that you learn all the ins and outs of due diligence, making smart offers, and observing contracting best practices. Another option is to work with a commercial real estate professional who has years of experience with similar transactions. Sure, there’s a commission involved, but most times it’s a small price to pay for the insider knowledge and attention to detail you get in return.
- The Government has an Interest: Rental housing is scarce in San Francisco, and the Rent Board can be a challenging agency to work with. They have an interest in making sure there’s no discrimination, that seniors and persons with disabilities are protected, and that the proper landlord services are provided to all tenants. Sometimes, those interests are in direct opposition to your business imperatives, and knowing how to navigate the system to get the best result is something that takes patience and learning.
Are you getting cold feet after reading this? We don’t mean to scare you off — owning a rental property in a strong market like San Francisco can be a tremendous asset that delivers good recurring revenue over the years, and often results in a much larger payoff when you decided to sell the property or trade up for a larger or more prestigious, higher-rent building.
Here at Gaetani we’re always happy to answer whatever questions you might have about buying and owning an investment property — whether that’s a duplex, triplex, mixed-use, or multi-unit apartment building. Our seven decades in business here in San Francisco has given us insights into how to do it right, and we’d be happy to help guide you through the process.