Tough Times for Multifamily Income Property Owners.

By sonoran • July 14th, 2009

It’s that cycle of the market where most multifamily property owners are having to adjust their modus operandi: even well cared for and superbly managed properties are seeing increased vacancy and pressures on rents.  This cycle seems to be of great girth, depth and resonance.

It’s a tough one, one that has and will continue to affect may owners.  It’s especially difficult for owners who debt prevents them from being competitive with owners who are able to reduce rents to stay competitive and still cash flow.

So what’s going on.

This is a perfect storm, a beauty from the distance but fierce when you’re in it.

1. Depressionary pressures: prices for many goods are down, but so are wages and unemployment.  Lower demand has forced many retailers to lower prices, cars, houses and many durable goods are down as well with rental rates right behind.

2. Consolidation: many people are consolidating living quarters reducing the need and increasing supply.

3. Vacancy: is also up because the buoyant housing market where prices have decreased a great deal making the rent vs. buy decision easier for the tenant.  The government is providing massive incentives in cash and low interest rates to reduce housing inventory, but at the same time hurting landlords.

4. Competition: is up from other owners and from single family homes and condos.  Multifamily owners not only have to compete against each other, but veryattractively priced single family homes.

What can you do.

This is not the time to cut back on maintenance, advertising and property management: quite the opposite. Owners need to be scrupulous with their resources and activities, but not to the detriment of the properties.

To compete in the is market you need to be diligent with having the units be clean, well cared, for, maintenance free and well advertised.

1. Adjust rents, even for existing tenants to keep them in place. It’s much less expensive to keep existing tenants then to to cope with vacancy, repairs and advertising for a new tenant.

2. Paint is an easy and cheap way to freshen up the interior and exterior. Often some strategically painted walls on the interior with interesting shades will make all the difference with out having to paint the entire interior.

3. Increase the competence and quality of your advertising. Make sure potential residents know about your property and get as much information as possible.

4. Be a little bit more flexible with credit. Many prospective tenants in the current market are the same people who lost their home to foreclosure or a short sale. These actions do not necessarily make them bad tenants.

Don’t skip on processing and due diligence. Sometimes it easy to bend your qualifications too much just to get a body in the doors. I’ll tell you from experience that tenants accepted out of desperation don’t work out and often end up costing much more then if you would have waited.

It’s a very difficult market now, one not seem in many decades. On the one hand there is a tremendous occasion to buy low priced distressed properties that will certainly do well. On the other hand current owners and new owners are all in the same difficult rental market. It’s people that take on adversity as a challange in personal life or business that get past it with strength, often in a better position then before.

Comments(1) Distressed Properties, Investing in multifamily, Management, Rental Trends

« | Home | »