I recently received a lead from a friend of mine about a 10 unit multifamily building going up for sale in the coming weeks. This friend knows I’m an investor and thought it would be a good opportunity for me. While I appreciate my friend thinking of me, this property one of the worse investment option I’ve ever come across….despite the price. Here are the 8 features of this building that kept me from pursuing the opportunity.
- The property’s street position – The first thing I thought when I stepped out of the car was “what an awful position this building was in” It was located toward the bottom of a steep hilly street. There was no doubt in my mind that when it rains this basement would be taking on water. Upon entering the basement, it took a matter of seconds to smell the damp air.
- The condition of the roof – The roof was one of the things that was not very visible from the photos my friend sent. Once I arrived at the property I could see a couple immediate turnoffs. The 1st was that the roof was slate. Slate is a great material when it’s in good condition but can be very expensive to repair. From the street I could see that the roof had already been patched and at some point and the patch was done with shingles versus the original slate material. This was probably done because the owner couldn’t afford the cost of the slate replacement. The 2 note I took was the steepness of the roof. When you’re replacing a roof the steeper the roof’s angles are the more difficult the work becomes. When the work become more difficult the price goes up.
- Public Transportation/ Parking – Before we entered the building I asked the owner about public transportation in the area. He replied that the bus stop was about 3 blocks “that way”. While 3 blocks isn’t very far for most people, please remember that this building is located on a hilly neighborhood in New England. Walking up or down a hill in the snowy weather is not the easiest thing to ask when you are trying to recruit good tenants. I also noticed there was parking for 6 vehicles while the building consisted of 10 units. Assuming each tenant had only one car, there would still be a few units without an open spot.
- Beautiful Victorian Structure – While Victorian homes are very appealing when properly maintained, the upkeep for this property style can be very costly. I don’t believe this is the best building style to choose for a rental apartment investor. This is something I noticed prior to visiting the building but the low price sucked me right in.
- No Uniformity – When you purchase a building with 10 plus units and none of the apartments are similar in size, shape or layout, the building become difficult to manage. For example, if I’m purchasing new kitchen cabinets for this building a would have to access each unit and measure whats needed for each individual space. If the apartments were uniform in terms of the layout, I would be able to measure one unit and multiply the order by 10.
- One Heating Unit – This isn’t a problem for every landlord but I personally do not like the idea of having one heating system for an entire apartment complex. Every tenant is going to either be too cold or too hot depending on the temperature you maintain in the building. Those that are too cold will consistently be calling the landlord to increase the heat and those that are too hot will a crack window to regulate the temperature in their units. In either case you have trouble. The alternative is to convert the building to separate heating systems for each unit, but this isn’t exactly a small investment.
- Inconsistent Rental Income – When I initially asked the owner about the occupancy of the building I was told that 9 of the 10 units were filled and rents flowing. By the time we connected with the property manager and received a tour of the building we found the it was closer to 6 units filled. I’m not sure where the disconnect happened but it didn’t appear the current owner could keep these units rented.
- Poor Job Market – Before we concluded our tour of this building I asked the property manager about the economic state of the city. His answer was less than encouraging and in so many words he told me that the “no one in the area could find work”. If that’s true then “no one in the area” can pay rent and this certainly isn’t the investment for me.