After sharing the story of our friend on the last blog “How much return am I really making from my investment property?” We decided to write about investing in luxury condos versus multifamily dwelling units.
Recently we were referred to a potential client that had invested in over 50 luxury condos, townhouses and single-family homes in different gated communities with in the past two years. He had a laundry list of frustrations, but guess what his main complaint was? ASSOCIATIONS. That is right, all of his real estate investments were in associations.
We will like to be clear, that to invest in properties that are in associations is not necessarily a bad idea, but when you are considering an investment that happens to be in an association, be very cautious and scrutinize the pros and cons of basically being in a partnership with that association. Investigate if there are any assessments that might be in the pipeline. Review the bylaws and understand the rights you have as an owner and the authority the association has over those rights. Again, having an association is not necessarily bad, but question, why are you adding and additional partner in to the deal. One of the beauties of investing in real estate is that there are many ways of investing, and a variety of asset classes to invest in. There are many people earning tons of money using different approaches. You should measure the risk involved in each and find the methods that are best for you.
One of Trajan Investments specializations is representing sellers and buyers on transactions for multifamily buildings, also known as multifamily dwelling units or MDU. For those that do not know; a multifamily dwelling, is simply a classification of housing where multiple residential units are under one or several structures with in a complex and /or parcel. Just think of an apartment building, where there are multiple families living in different units, under the same roof. Once the building has 5 or more rental units, it is considered a commercial structure.
Back to our frustrated investor and his headaches of dealing with different associations. He told us that after investing in these properties, he actually had to hire an assistant just to deal with all of their requests. Here is the thing, though he is the owner and the landlord he must comply 100% with the policies and fees of the associations. For example, if you feel you have found a qualified tenant, the association still has to approve them. This usually means the tenant has to fill out an application and submit it for review. The association usually will charge a non-refundable application fee, that can run from $50-$200 per any applicant that is 18 years or older. That means, if there is couple applying, multiply the fee by 2 and if they happen to live with their 18-year son or daughter, multiply the fee by 3, and so on. Once this application is submitted, the approval process can take one to three weeks. All this time your property is sitting there not collecting rent. If for any reason they deny the applicants, you have to start the entire process over. Imagine spending money on marketing and covering the monthly expenses, while your asset is not performing. You see why the frustration can build for any investor. Not to mention, all the restrictions. We are talking about landscaping, exterior paint color, balcony/patio furniture and pet restrictions. If you want to renovate, you have to ask for permission. Also, if the association does not have enough reserves to cover for common area emergencies or renovations, guess who is responsible? If you guess the owner, you are correct, the word you are probably looking for is assessment. An investor might start to wonder, who really is the landlord?
From all the 50 properties this investor has purchased, nearly 1/4th are empty just because the association keeps denying tenants and some even frown upon investors. This particular investor told us that most of the denials that his potential tenants have received are due to bad credit. He felt they were good people that just had some blemishes on their credit report. He is willing to take the risk as a landlord, but it is not up to him.
Why we recommend investing in multifamily properties?
As a landlord, you want to have as much control of your property, as possible. So, by investing in multifamily dwellings, you can own multiple units under the same roof. Why not collect rent from several units in only one location? Only one roof to fix or replace. You get to be the association that creates and implements your own rules and regulations. Doesn’t that sound like less of a headache?
During our years in this business we have facilitated these types of transactions for our investors and have sold millions of dollars worth of this type of asset class. We have become so familiar with the process, that we have invested ourselves in multifamily properties. When owners contact us to sell, they get an educated experienced professional on their side. We are able to present their building to a vast array of investors in our database that are qualified and can close fast.
If you are looking to sell or buy multifamily apartment buildings, feel free to contact us. It will be our pleasure to assist and guide you through the process.
If by any chance, you are or know of a local or foreign investor investing or planning to invest in properties with associations, please have them reach out to us. We can review their options on the commercial real estate investment world.
Your Trajan Investment Team – Assisting Commercial Real Estate Investors to Prosper!
Trajan Investments, Inc. A Commercial Real Estate Brokerage and Consulting Firm.
Call us anytime with questions at – 305-482-1118