Many people start their real estate investing with multi-family properties, which makes perfect sense on many levels. An important consideration when buying is how your investment will be managed. Will you do it yourself to save money, or hire a professional to collect rents and field maintenance and complaint calls 24/7?
The cost of a property manager is typically 5% of gross rents, is tax deductible, and will allow you to sleep at night. When buyers see financials from a Certified Property Manager (CPM), the trust factor goes up immeasurably. Also, it is better to include the management cost as an expense to prospective buyers, which will expand the available buyer pool to include those wanting this service. This in itself can raise the value and salability of a property. So, saving money with the DIY method may be an illusion in this case.
There are a number of red flags when purchasing a multi-family that can show up in how the financials are presented, such as co-mingling funds (mixing personal expenses in with the buildings’ expenses) among other things. Such practices muddy the waters in your effort to understand what is real and what isn’t. If you are a savvy investor, you may spot these blemishes, and see an opportunity to buy at a discount, knowing you can add value. Beginners however, would be best advised to steer clear or at least have expert advice.
Of course, you don’t have to be a CPM to manage any property well. Many do just that. But, those owners understand (hopefully) the value of accurate profit & loss reports, depreciation schedules, and allocating capital funds for future repairs, and how those things affect the property’s market value. If you about know all this stuff, you’re on par with the pros!