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Jan 23

Important things you need to know before buying multi-units in low income areas

Multi units in low income areas

Multi units in low income areas

Many will preach that multi units are a shortcut to financial freedom.  Multi units are desirable as they are perceived to generate multiple income streams under one roof. While generating multiple income streams, there is still only one tax bill, one insurance bill and even if not 100% occupied they still generate income.

When purchasing multi units, consider the area you are investing in. It has been my experience that when investing in low income areas, multi units lose desirability unless rented well below single family rents.  Finding multiple, matching personalities in low income areas are always a challenge therefore, creating high turnover and high vacancy rates. Before purchasing multi units in low income areas, consider these key factors.

 What are the local rent rates for single family houses?

If you can rent a house for the same amount that you can rent an apartment, most people will choose the house.  People want their space, they don’t want to deal with other personalities when they can afford a single family home for the same amount they can pay for an apartment.

Separate Utilities

You want a multi-unit with separate utilities.  In some areas, single family homes have been converted to multi-units. Most times the owner will separate the electric, but not the water or gas. Maintenance tends to be higher on these types of properties. The systems were not built for multiple family use, often times if the building is at full occupancy the water heater will have a hard time keeping up and so forth. There is less maintenance on buildings with separate utilities.

How low is low-income?

Keep in mind that most low income areas, are people living off of government assistance, local assistance or work a minimum wage job.  In most cases a person collecting social security is collecting a minimum of $700, which is not a lot. If a person is working a minimum wage job, chances are they are only clearing $1,200 a month. Would somebody bringing in this type of income be able to rent your unit?  Do your rents reflect affordability for minimum wage employees? In my low income area, 90% of my clientele collects social security. I need to offer affordable apartments that somebody on social security can afford.

Location, Location, Location!

If you are buying multi units in low income areas, try to pick good areas. If you offer quality, affordable units in good areas, you will most likely fill your units first, keeping vacancies low.

Appliances

In my investment area we do not have to supply a refrigerator or stove with our rental units. Most of the tenants travel with them when renting single family homes. When renting apartments, people expect them and I recommend supplying them. Apartments with appliances will rent quicker than apartments without. If there is enough room in the basement, you could install a coin operated washer/dryer for an extra income stream and it is a good selling point for prospective tenants.

Adding value to your rental unit that is in a low income area, such as including free wi-fi may put you above the rest. Even renting below market value will fill vacancies quicker.  When I say below market value I mean $5-$25, which really is not a whole lot, especially if it retains a tenant for years to come.

Multi units can be very lucrative, and I feel they work better in some markets better than others. I rent mine for $25 below market rent and have extremely low turnover.

Happy investing