Setting the Foundation for the Multifamily Investment Process: Assessing Property
By Kyle Pulis
The numbers continue to show that owning a multi-family building is a great retirement plan. The investment is safe, low maintenance and provides a constant stream of residual income that will help fuel a great lifestyle over many years. Its the reason that multifamily investment has become the preferred retirement plan for thousands of baby-boomers across Canada in recent years. Clearly, I very much support this type of plan. But success in the multifamily investment marketplace requires proactivity and preparation. As an investor, you have to make sure the building is ready for decades of successful ownership. So lets look at the most important elements to consider when reviewing potential multifamily investments.
When you arrive at a property there are two things you have to keep in mind throughout: how you are going to ensure this property will continuously stay rented and how you will be able to keep costs low. Its important for you to take a long-term view when assessing the propertys infrastructure. This means that, when reviewing the building for the first time, your two major concerns should be the major capital expenditures and the building design. Major capital expenditures such as HVAC systems, roofing, plumbing and electrical systems are a critical element in successful real estate ownership. In any property purchase, these systems can make or break the value of the deal.
The buildings design will play an important role in attracting tenants. Because the average tenant isnt going to have knowledge of the mechanical elements of the building, theyll likely focus on the aesthetics of the design. Its important to think like a tenant when considering the propertys design. Are the hallways new and clean? Have the bathrooms and kitchens in the home been renovated in recent years and are they big enough to comfortably move around in? These are the types of questions that tenants will be asking themselves when reviewing the home and these factors should be reflected in your thinking as well when visiting the multifamily building for the first time.
Here are the Major Capital Expenditures to Consider:
The roofing system will play a critical role in the safety and security of the property. Investors should have the roofing system reviewed professionally to ensure that the system is well protected against problems such as cracking tiles and moisture leaks. Roofing leaks can become one of the largest expenditures for multifamily building owners, as they often lead to serious interior or even structural damage. Closely assessing all roofing systems will protect your investment.
When analyzing windows within a multifamily property, you should look at both the aesthetic and structural factors. Are there small cracks in the glass due to weathering? Are the windows mismatched within the property? Multifamily owners will find they can save money on their heating and cooling by integrating quality window systems. Also, making sure the windows open and close properly and have screens in place will ensure a happy tenant.
HVAC systems such as boilers and heaters must be closely reviewed when assessing the entire property. The age of the HVAC systems is an important point to consider. For example, if the boiler system is over 20 years old, it will require replacing during your ownership if you buy the building. How much will this system cost? Can you afford the outlay in the first 5 years of ownership, even if you dont need to replace it? Is it functioning as efficiently as possible? When it was last cleaned/serviced? A good service can save you 20% or more on your heating bill, especially if it has been years since the systems last service and if the system has not been working properly.
Plumbing and Electrical
The buildings plumbing and electrical systems will play a key part in your month-to-month operations costs. Youll have to consider whether the latest efficiency standards are met by the buildings system. Youll also have to ensure that the electrical work has been analyzed and approved by a certified contractor to avoid potential security risks within the property. Switching your plumbing fixtures to low-flow fixtures and placing LED or CFL light bulbs in your hallway lights are great ways to lower your utility bills.
The Role of Renovation and Design in Attracting Your Tenant Profile
After closely reviewing all of the important capital expenditures for the property, its time to analyze the buildings design. I know, from experience, the importance that tenants place on nicely laid out units. Its amazing the difference that modern decorations can make in the caliber of tenant youre able to bring in to the property. Quality décor can bring in quality tenants that pay their rent on time.
Consider the convenience factor too when reviewing property design. Having systems like in-suite laundry and the ability to control their own temperature are very important to todays high caliber tenants. High value tenants also appreciate conveniences such as dishwashers and cutting-edge cooking equipment. The return on investment can be high with these types of additions.
If you decide to complete renovations on the property, remember that durable materials can help keep maintenance costs low. Complete comprehensive research, on both the contractor and the materials they use, to ensure youre getting a good deal for the future rather than just the short-term. Flooring, cupboards and paint products should be of the highest standard for building owners to keep their costs low.
Proactive, Future-Focused Investors Can Save over the Long-Term
By making the correct decisions during the property analysis process, youll make lasting savings over your years of multifamily building ownership. At every step in the analysis, make contacts with construction industry professionals and ensure theyre available to answer your questions along the way. Theres clear value and lucrative opportunity in multifamily property ownership, but you have to make data-backed choices and get the planning right first. When you do, youll get the right tenant living in the right property under your ownership for many years.
Kyle Pulis, winner of REIN’s Rookie of the Year, Multi-Family Player of the Year, Leslie Cluff Memorial Player of the Year and Top 10 Player of the Year awards also volunteers at the Brampton Downtown Development Committee. Kyle can be reached at: email@example.com.