By Dawn Dyer, Dyer Sheehan Group, Inc.
Demand for rental housing has increased dramatically over the past several months, with vacancy rates down locally and nationally. Rents are expected to rise, as the supply of new rental housing has not kept pace with anticipated demand.
As a result, it is a great time to purchase a multifamily investment property, or to enhance your equity position by trading up into a larger building. However, real estate investing is never fool proof. It is a business, which like any other endeavor, merits careful planning and attention to detail in order to maximize your return.
In the past two installments of this column, we have explored some of the most common investment mistakes, and offered suggestions to avoid or mitigate them. This article will round out the Top 10 list, and help apartment owners safeguard their assets. First, let’s briefly recap the six issues we have covered so far.
Winging It– Lack of a strategic business plan
Getting Emotionally Involved– An experienced multi-family broker can be a valuable buffer.
Thinking You Can Time the Market– Real estate is not a get-rich-quick scheme.
Dodging Due Diligence- Do your homework!
Over-paying for Property - You are supposed to make money when you buy real estate. Right?
Lack of Staying Power– Expect the unexpected. Be sure your plan includes adequate reserves.
And now, here are the final four most common multifamily investment mistakes.
Failure to Budget for Capital Expenses and Reserves
Eventually, every building will need a new roof, major plumbing or electrical repairs, exterior paint, and some rehabilitation of rental units and common areas. If you don’t budget for these items annually, and account for these significant expenses in your financial analysis, you’re fooling yourself about the property’s cash flow. What’s worse, you may not have sufficient funds available when major repairs are needed, putting your property at risk of deteriorating and then losing quality tenants.
Poor Management Oversight
No one will ever care as much about your bottom line as you do. While many reputable property management companies will do a terrific job of leasing vacant units, and paying your bills on time, you should review all monthly operating statements closely, regardless of who is doing the managing (yourself included), ask questions, and compare expenses, rents and vacancy rates with other properties or local industry standards.
Deferring maintenance will cost you now or it will cost much more later. Skipping background or credit checks on potential renters could cost you a fortune in legal and other expenses. Use AAGLA’s tenant screening services.
Using sub-standard materials, hiring unlicensed contractors, or neglecting to pull required building permits can all lead to catastrophic results that cost far more than you thought you were saving.
Thinking You Can “Go it Alone”
Investing in and managing real estate is a complex affair that involves many disciplines. Few people are experts in all of the fields that are needed to succeed. Build strong relationships with a team of reliable professionals, who you trust. Heed their advice. Your team should include: a qualified investment real estate broker, an attorney who is well versed in landlord/tenant law, an experienced accountant, mortgage professional, insurance advisor, and general contractor.
Now is a great time to invest. With careful planning and execution, you can build a portfolio of properties that will provide substantial returns for the long run.
Dyer Sheehan Group, Inc., is Ventura County’s Apartment Expert. Our professional Brokerage & Real Estate Consulting Services enable Clients to Make Informed Investment & Development Decisions by Identifying Opportunities, Solving Problems & Mitigating Risks. All information provided herein is from sources deemed to be reliable, but no guarantee or warranty is stated or implied. Copyright© 2011 Dyer Sheehan Group, Inc.