In this episode of Get Real Wealthy Season 2, Quentin talks about the challenges of purchasing multifamily properties.
Quentin says that when you buy distressed multifamily assets, the benefit that comes with repositioning that asset is that you're buying a property, as the value is based on the net operating income and the current cap rate. This means that when you're buying a property, there is value that you can create by increasing rents, increasing the quality of the building, and therefore increasing the value of the building. So, there are a few challenges and things that you need to be aware of when purchasing multifamily properties. Oftentimes, you'll find that there are unexpected arrears that happen when it comes to a residential property. The way to mitigate that risk is by having a good reserve fund. So when you're buying a property, you want to have enough funds in the bank to cover at least three months of all your expenses, if not more for an apartment building.
Secondly, expect tenant troubles. It's going to take time to get to know the building, understand the different tenants that are in there, and the type of issues that come up when you are taking over a building. Your property manager or you will have to learn how to deal with them. Number three is to dig deep into the mechanicals of the building and the roof system. Those are some of your bigger expenses and structures. The number four thing to watch out for is keys. Sometimes you'll find that you get to a building, and you may have the keys for the units, but not the keys for the washing machine, the dryer, the elevator, the electrical room, and the electrical panels sometimes have locked locks on them. So, when you're going through your building condition report, you should locate where all of the keys are.
In conclusion, he says that these are the challenges with purchasing multifamily properties or just acquiring multifamily properties that you need to be mindful of to make your experience smooth and easy.