I have a biased opinion when it comes to whether a multifamily housing landlord is better than a single family landlord. If you can use the analogy of college classes, multifamily housing landlord is like the person who took math and science classes. Miss an hour of class, and you may as well drop the entire course.
A single family housing landlord is like the person who took history and music classes (no offense history and music majors…). Miss half the semester, drink a bunch of coffee and you can get caught up. I also have an undergraduate degree in computer science and math…
Tenant Selection
Tenant selection is the primary key to landlording success.
Bad tenants are everywhere. By a bad tenant, I mean a tenant that may pay rent late on a habitual basis. A tenant that you might want to non-renew their lease. Sometimes it is a tenant you have to evict. Or a tenant that leaves damages well beyond normal wear and tear, and even worse, beyond their damage deposit.
Until you have had great tenants, it is near impossible to understand a bad tenant. You just assume that all people are pigs and stay until they get evicted or asked to move. The same is true if you have only great tenants. You just assume that people pay rent, and leave the place in decent condition.
Multifamily housing seems to draw worse tenants than single family housing. You have to be constantly on the lookout for subpar tenants, and avoid them at all costs, including vacancy.
Single Family Landlords Can Get By With Luck
If all you have are a few single family houses, you often are lucky with tenant selection.
You get tenants, and they stay on for years if they are good. You replace tenants every 10 years or so; and never get to enjoy the full and complete landlord experience of a bad tenant. Anyone can be a landlord to single family housing tenants. It doesn’t require much skill beyond Landlording 101.
Multifamily landlording is completely different. You have to be on top of your game, every minute, of every day. This is graduate level landlording, especially if your housing is targeting low-income or Section 8 tenants.
If you are a rookie, multifamily housing tenants will eat you alive if you are not ready for them, or if you turn your back. You can get great multifamily housing tenants too, but you have to target them, and cater to them,
Multifamily Tenants Have Different Goals
With multifamily housing, turnover happens more often.
It is almost by design, and has an element of adverse selection. Multifamily tenants have shorter term goals. Often, these tenants are saving money to buy a home. Or they live in an apartment because they know they will be transferred to a different job location. Or they cannot afford a single family home, so they choose multifamily.
They know the tenant qualifications are more stringent for a SFH, so they choose an apartment. They know when their existing apartment gets run down, they trade it in for a new model in a different complex. All of these reasons mean the tenant is probably more of a shorter term renter than longer term.
Multifamily Tenants Can Cause Move Outs
In multifamily housing, tenants need to get along with each other.
They pass each other in the hall. They live above, below, or side by side and share walls, ceilings and floors with the tenant next door. Sometimes they even share garages. They know when each other is on vacation, and the next door neighbors house is vacant.
With a single family, as long as your tenant pays rent, you do not care if everyone in the neighborhood moves out. In a multifamily, when one tenant is less than stellar, it causes move-outs among your other good tenants. A single bad tenant can consume all of your time. They are on your brain more than the other 99 tenants you have. They begin to devour your every waking minute.
When you find out about a tenants subpar behavior, it is often right after the tenants move in. Unfortunately, your other tenants who are annoyed are in the middle or the end of their lease, and can move out sooner. You are stuck with the bad tenant, and will have a vacancy to fill. Again.
Multifamily Applicants Are Statistically Less Qualified
When you are advertising a rental, it often seems that all you have are unqualified tenants in the marketplace.
It appears nearly everyone has poor credit, poor rental history, poor criminal record or a poor income. This is not actually the case; there are plenty of great renters in every rental market. Why does it seem that way then?
About 30% or renters can be problematic. This closely follows the 80/20 rule, but multifamily housing seems to attract the extra 10%. Subpar tenants tend to stick to multifamily housing; it is cheaper and easier to qualify. A single family landlord, who generally has a more expensive place, has the advantage and does not even have to work for it.
The fact is, with subpar renters, that 30% move more often. I am not sure how often, but I think you can safely assume subpar renter moves at least twice as often. They get evicted. They get non-renewed. They get their lease terminated. So instead of 30% of your ad responses being tenants you do not want, it’s closer to 60%.
But the line of subpar tenants does not stop there. Subpar tenants know they will not get accepted in many places, so they have to apply to more places.
Here again, I think you can assume they inquire to at least twice as many places as solid renters. Solid renters inquire to the places they want to live at, subpar renters apply at any place they can. That means, you have four times as many inquiries from subpar renters as you do solid renters, so now it’s like 75% of prospects are subpar. WOW, no wonder it seems like eternity to get a decent renter for a showing.
So a multifamily landlord is finding new tenants more often, and has more of a chance to ‘make a mistake’ and take in a subpar tenant. The advantage is they get the landlord and property management experience, real fast. They understand damages, lost rent, evictions and other headaches that go along with subpar tenants.
Multifamily Has Its Advantages
Being a multifamily housing landlord does have its advantages.
Often, even extensive damages are easier and less expensive to fix. There is generally less square footage so, by definition, there is less to go wrong. There is less to clean. Heating systems are often beyond the tenants reach in some sort of basement utility room.
When you show an apartment, you can show the apartment down the hall, as it is identical to the unit that will be opening up after your eviction completes its course. When you have enough units, you can run continuous advertisements, so you are never trying to create an ad from scratch. You get to be more polished in your apartment rental presentation, as you do it all the time.
Of course, the biggest advantage of being a multifamily housing landlord is you often make more money than a single family landlord. Sometimes lots more.
15% cash-on-cash returns even with a large down payment are not uncommon. This is because only certain people can afford to get into the real estate game, and from there only a certain amount of those people get into the rental market, and then only a certain amount of people get into multifamily housing. The hurdle to multifamily is high; and the rewards are high too.
When you are a successful multifamily housing landlord, you are part of an elite group of landlords, and have earned your stripes.
What do you think? Is being a multifamily housing landlord more difficult than being a single family landlord? What type of RE investment are you pursuing?
This article was originally posted here