Will Multifamily Thrive or Dive?
- April 2, 2018
- Posted by: SuperAdmin
- Category: Business plans
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I’ve heard this question a lot recently because it’s a VERY logical question…
“If multi-family properties weather a downturn better than most asset classes, why do you feel some owners will be in trouble? I don’t understand how multifamily can dive and thrive at the same time.”
Can something be good for one person and bad for another? The Encyclopedia of Ethics states that a ’thing’can’t be both good and bad, reasoning if one ‘thing’ appears good to one group and bad to another, it’s due to each groups history of persuasion, rather than the ‘thing’ itself.
Let me wax poetic on you for a second. The biggest “persuasion” is to think ‘things’ are the asset. Multifamily is neither good or bad, because it isn’t the TRUE asset. The TRUE asset isn’t ever about the property, stock, or business… it’s the people behind the properties, stocks, or businesses.
People, not ’things,’ are the TRUE ASSETS.
Multifamily, like a Ferrari, is just a vehicle with a lot of potential. A Ferrari driven by a toddler will lose to a Ford Festiva driven by Mario Andretti every damn time… unless the toddler driving the Ferrari IS Mario Andretti… but we digress.
Good operators are the assets. Bad operators are the ass hats… err, I mean the liabilities.
Now that we have that cleared up, we can discuss why some operators will THRIVE and some will DIVE.
There are a number of short term issues multi-family owners are battling right now, one of the biggest being The CARES Act Eviction Moratorium which restricts owners from evicting tenants or charging late fees for non-payment. Owners who don’t have solid operating procedures in place will certainly have a hard time collecting rents with those restrictions in place.
If rent collections suffer obviously owners will struggle to pay their bills. If they overpaid for the property and/or don’t have proper reserves in place this problem will be further escalated. This will force them to cut costs and many will decide to stop handling maintenance requests… which is the #1 reason people leave!
As tenants leave, owners will loosen screening policies in attempts to drive up occupancy, which results in a lower quality tenants. Shitty neighbors are the worst though, am I right? Which means, as good tenants, the ones who actually pay their rent, see lower quality tenants arriving, they choose not to re-lease. Maintenance requests are the #1 reason people leave but having a sense of community is the #1 reason people STAY.
Despite the overall demand increasing, marginal owners will find themselves in a spiraling problem due to short term strains.