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        <title>Trends</title>
        <link>http://www.phoenixmarkettrends.com/blog/multifamily/</link>
        <description>Over 1,500 posts and articles about living in Phoenix, Phoenix real estate market trends and the process and business or real estate. </description>
        <item>
            <guid>http://www.phoenixmarkettrends.com/blog/why-real-estate-investing-is-awesome.html</guid>
            <link>http://www.phoenixmarkettrends.com/blog/why-real-estate-investing-is-awesome.html</link>
            <author>artur@inphoenix.com (Artur Ciesielski)</author>
            <title>Why Real Estate Investing Is Awesome</title>
            <description> <![CDATA[ 
I've been a real estate investor for a while, over a decade now, that's how I got into the real estate industry then into being Realtor full time. Going in I knew it could be a rocky industry and it has been. I also knew there were many ways to generate income as an investor: both passive and active. I'll skip the active here because what that really is is a job in itself, not investing and I want to concentrate on investing and one particular example of how well it can work, especially now.  


The example below is based on an actual property that I personally purchased in the last 6 months. I'm using it because I know all the numbers, inside and out, but I won't disclose the property address and I don't keep real estate in my name either. 


The subject property is a triplex in Phoenix. It's three units: one two bedroom and two one bedroom units each with one bath, plus a shared coin operated laundry.


Purchase price: $145,000 - 20% down - 5.5% private, interest only loan for 5 years - I'll  also provide an example of the results with a more typical 20% down - 4.5% 30 year fixed and fully amortized loan.


All Income: (monthly)




Rents: $2,000 


Laundry Income: $90.00




Total: $2,090.00


All Expenses: (monthly)




Mortgage payment: $532.00


Electricity: $45.00 (common area + laundry)


Water: $150.00


Taxes: $1,230.00/12 = $102.5


Insurance: $750.00/12 = $62.5


Landscaping $100.00


Repairs $85.00 (average over the last 6 months)




Total: $1,077.00






Monthly cash flow: $1,013


Annual cash flow: $12,156


Cash on cash:  42%






What if it was a more typical investor loan?




Mortgage: $575.00 + (taxes) + (insurance)


Monthly cash flow: $970.00


Annual cash flow: $11,640




With a more traditional loan the investment is even better. 1. The cash flow is equally good, but because of the lower interest rate less goes toward interest payments. In addition a large portion of the monthly payment goes toward principal: the 1st year $1,871 goes toward principal, in year 3, $2,141 in principal pay-down and year 5, $2,342.


At the same time annual rents tend to trend up, if not every year you should see an increase at least 1-3 times over 5 years, but there are many factors here.


I did not include deferred maintenance. I did not have any, but depending  on your finances it may be prudent to set aside or calculate in a monthly per unit amount for deferred maintenance and capital expenditures. This is stuff like replacement of air conditioning units, roof and so on.


Also how are you going to manage it? Management cost money? If you hire a management company it can be 10% of your gross income plus leasing feed. If you self manage there is still opportunity cost involved: there is always a cost, even if it's not monetary. I left it off, because it's different for me then you.


Vacancy is another cost not included here: this property has been leased and full for over 4 years, but you may want to add a 3-10% vacancy rate - maybe higher if you have a management company involved since it takes longer to lease that way.


Cash flow on a multifamily property needs to be higher then a single family home. It's the nature of the beast. In a triplex, for instance, you have three of everything: three, kitchen, 3 heat-pumps, 3 water heaters and so on, in addition to, greater turnover. The higher cash flow makes up for that, theoretically.


It also comes down to how you manage your business, where it's located etc. 


As you can see the results are pretty good here. Once you have a few of them plus they have some age, in addition to other sources of income then you are more in control of your finances rather then your boss.


Another thing I want to mention. That is about the value of the property. In this case it was purchased at regular market price, but what if in 5 or 10 years the market is bad? For one, I don't have to sell it! The value can be the same - that is the price may go up at all. I don't care: look at the cash flow. Even if I sell at the same price with the loss of my selling costs at 7% I still did very well, especially if I had the traditional loan and not the private loan.


 


 



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            <pubDate>Tue, 10 Apr 2012 12:26:00 -0500</pubDate>
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            <guid>http://www.phoenixmarkettrends.com/blog/mid-century-modern-triplex-update.html</guid>
            <link>http://www.phoenixmarkettrends.com/blog/mid-century-modern-triplex-update.html</link>
            <author>artur@inphoenix.com (Artur Ciesielski)</author>
            <title>Mid-Century Modern Triplex Update</title>
            <description> <![CDATA[ 
A few weeks ago I wrote about the progress of a remodel we're doing on Central Phoenix mid-century modern. Check out the before picture.


That remodel has been completed except for a few items. Below are three photos of the kitchen and living space. This is a one bedroom apartment so there is a limit of how many relevent photos I can take, but these will give you a good idea of what is there.


The change is rather dramatic. I like the skylight: I'm big on natural light and the expense and effort were worth it to me, despite what my handy man said.





The kitchen cabinets and fixtures are from Ikea. The stove is one thing we splurged on. A 5 burner gas stove which is awesome and visually striking.





The floor is a laminate from Ikea which I've been using in many of the apartments we have. I highly recommend this durable floor as it has withstood the test of time and action in many situations, even being soaked in water for over a day.





What do you think?


 


 


 



 ]]> </description>
            <pubDate>Sat, 31 Mar 2012 00:01:50 -0500</pubDate>
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            <guid>http://www.phoenixmarkettrends.com/blog/remodeling-a-mid-century-modern-triplex.html</guid>
            <link>http://www.phoenixmarkettrends.com/blog/remodeling-a-mid-century-modern-triplex.html</link>
            <author>artur@inphoenix.com (Artur Ciesielski)</author>
            <title>Remodeling A Mid Century Modern Triplex</title>
            <description> <![CDATA[ 
Over the last week or so we've been in the grips of another remodel. This time of a one bedroom unit in one of our triplexes. It's a really neat little property, one of my favorites, so it gets a little bit more attention then other multiplexes in our portfolio, though I try to take good care of them all since they take care of me.


A few years ago we remodeled the two bedroom unit, top to bottom, including the bedrooms and bathrooms. The one bedroom is getting a face-lift in the living room and kitchen with the bedroom and bathroom at a later time.


One of the reasons it's getting a facelift is, I like doing this stuff. Not physically, though I can do it all myself, but the design etc. and especially seeing the progress.


Since it's on my mind, the most cumbersome and expensive things with such a remodel are the details: all that little stuff really adds up and can easily double the cost. Thinks like adding electrical contacts for new lights, moving the plumbing a few inches, knobs, valves, screws, dimmers, light bulbs, boxes and I can keep the list going way past a thousand words probably.


Another reason is that one of the previous tenants turned out the be a bit irresponsible with letting her ferret soil the floor leaving a distinct smell which bearable since it was occupied for 2 years with other tenants made me squirm each time I smelled it, so it was time to remove it.


Also the kitchen made the place dark and dreary.


The remodel, is still on going and will include a new kitchen from IKEA, a very nice gas stove, lots of modern touches, new laminate flooring and in the middle of the room a solar tube to suck in some more light. 





What you see above is a photo after most of the kitchen cabinets were removed. Progress is much further now. There are really only a few details left so I should have the results for you in about a week.


What will this remodel get me? An easier to lease place. Most of the apartments we remodeled usually lease before they are vacated or shortly after: vacancy is much lower. The rent will probably be higher by 30-40% and my payback will be 3-4 years, including opportunity cost. Plus a higher possible sales price because of the higher income and less things to take care of so maintenance issues should be almost nil.


Each person run thier busienss as they see fit. I like to run mine with better properties, longer term tenants, less calls about issues and happier tenants. It pays a little less, but it all depends on how much value you assign to the aggrevation factor of owning multifamily properties. In other works, what are you willing to do to reduce the amount of maintenance calls you get or tenants issues you have. I'm willing to pay: others are not, but I thing they are wrong.


Come back in about a week when I post photos of the finished place. 


Do you have a remodel you'd like to share?
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            <pubDate>Sun, 18 Mar 2012 14:12:00 -0500</pubDate>
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            <guid>http://www.phoenixmarkettrends.com/blog/multifamily-insights-hows-your-water-bill.html</guid>
            <link>http://www.phoenixmarkettrends.com/blog/multifamily-insights-hows-your-water-bill.html</link>
            <author>artur@inphoenix.com (Artur Ciesielski)</author>
            <title>Multifamily Insights - How's Your Water Bill</title>
            <description> <![CDATA[ 
Depending on the property water bills will very a lot of a little, but many of the factors are in your control. Most 3-4 unit properties will have this basic set up. Owner pays water - sewer and trash. Anytime a tenant does not pay for something it will be subject to overuse and in some cases abuse. That means if the toilet is leaking it will lower your income and increase expenses, but you're unlikely to know about it for a while since the tenant really has no motivation for letting you know, unless you make it easy for them to do it, or if you ask. 


For a basic property with no grass to water, with desert landscaping, expect bills to run at an average of $40 per unit.  This can rise dramatically if you have grass and it can be enven higher if the tenants each have their own washer and dryer. If that is the case you can see bills at $60-90 per unit. 


It would seem that you can price it into unit rent price, but that's not always the case. You can get a premium for the unit having a private washer and dryer, but that premium rarely includes a premium for water use. Take that into account when valuing the property for purchase.


One way to keep on top of lease and lose valves is to ask tenants once in a while if they have any drips or runny toilets. If you send out statements you can include a form that a tenant can fill out with any issues. Be careful with this one as it can open up a Pandora's box with certain tenants. It's a balance. Also inspect your property: walk it once in while: look for wet spots on the ground, talk to tenants if you see them.


Water costs are some of the largest monthly expenses aside from a mortgage, so it's worth keeping an eye on usage.  Just a small leak can cost you hundreds of dollars and even several consistent runny toilets can cost you enough to make this extra effort worth it.
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            <pubDate>Sun, 11 Mar 2012 09:53:00 -0500</pubDate>
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            <guid>http://www.phoenixmarkettrends.com/blog/buying-and-running-a-small-multifamily-business-from-out-of-town.html</guid>
            <link>http://www.phoenixmarkettrends.com/blog/buying-and-running-a-small-multifamily-business-from-out-of-town.html</link>
            <author>artur@inphoenix.com (Artur Ciesielski)</author>
            <title>Buying And Running A Small Multifamily Business From Out of Town</title>
            <description> <![CDATA[ 
I'll say it right out. It makes me nervous when investors come from out of town and want to invest in small multifamily properties like triplexes, fourplexes or even a little larger units with the intent of hiring a management company.


I cringe and almost feel like declining helping them, because I don't want them to get into a situation that most out of town investors get into with hiring management companies.




However it is possible to do this thing, but...  First let me get into the common issues I've seen over and over for many years and I'll follow up with some possible alternatives. 




Common Problems


The common problems you'll notice come across is that the management companies have a different goal then you do and a different way to manage properties. Small multifamily properties are fickle beasts. They can and often are very lucrative, providing a very good return on the investment, even when you add in the friendly fire, but who will it be lucrative for: you or the management company? 


They are especially good investments if they are taken care of, well managed and held onto for a number of years. A stabilized property is the golden goose, but the goose needs to be fed, kept groomed and happy. If it is, it will provide a steady monthly supply of golden eggs. Left to fend for itself those eggs will be clumps of coal weighing down your portfolio and reaping havoc on your nervous system, literally.



A management company will never or rarely and I truly want to emphasis the word rarely care about the property, the long term viability, customer base and care of the property as much as you will. Further more, it is difficult and costly to turn a property around once it has a bad mix of customers, especially if a once nice property in a nice neighborhood has become not such a nice property in a no longer nice neighborhood: a reputation is easy to get and hard to shake off.


Management companies do not match their schedules with the needs of the prospective tenants. I lease out my own properties so I know how it is. One of the most common comments I hear, and I do ask, is that a management company has not returned a call or they are not available after 5 pm to show a property or on a weekend. Just think about the most common potential client for this type of property. They will have varied schedules and most will work common hours, hampering their ability to see a property between 9-5. That is unless you want unemployed or those self-employed persons who have a hard time making enough steady income.


Not only that, when you call you have to go through a maze of 'select number 'this' for 'this' then another number and another number here', only to end up in a voice mail box that will be mostly likely full and you can't even leave a message. Sounds excessive, unlikey? This is the norm.


Some Alternatives


One of the alternatives is to manage the property yourself. I'm not saying it's the best solution for everyone, but it is a good one if the property is stable and meets a number of criteria that will make this easier. If it does, then the end result is a truly smooth process. 


Some of the requirements are a stable property, one that is repaired with a good customers - tenants: an agent or someone that can help you lease the units - someone qualified and responsive: and a base of people to call when items need to be done.


If a property is stable then issues and repairs will be rare. If you have good customers they will also take care of the property and simply make the whole adventure more pleasant. 


I have properties that I check up on once a month and that is it. The tenants send in checks and I have people on call whom I call if an A/C needs to be serviced or a property readied for another tenant. 


Many of our clients live in other states and do the same thing. They just have someone locally who can lease the property for them. That is important, though and the agent will need to be vetted carefully.


Another solution and maybe the most viable one is to find a smaller company where you have one person assigned to you and that one person handles it all. That way you have one point of contact and one person to hold accountable as opposed to a moloh where you're passed down from department to department and no one really is responsible: that's where the failure is. If each person can blame someone else or hold anther person or department responsible than no one does anything right and you get stuck in what is really an epitome of inefficiency and bureaucracy. 


I want to be wary of this process and make sure you know what your in for. it's lucrative, but not easy when you hand  it off to someone else who really does not have the same goals as you do.
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            <pubDate>Sat, 18 Feb 2012 17:26:00 -0600</pubDate>
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            <guid>http://www.phoenixmarkettrends.com/blog/multifamily-shows-strong-prospects-for-the-next-few-years.html</guid>
            <link>http://www.phoenixmarkettrends.com/blog/multifamily-shows-strong-prospects-for-the-next-few-years.html</link>
            <author>artur@inphoenix.com (Artur Ciesielski)</author>
            <title>Multifamily Shows Strong Prospects For The Next Few Years</title>
            <description> <![CDATA[ 
An indication of the popularity of multifamily properties is the obvious lack of inventory and the activity when decent properties do hit the market. There is no doubt, small multifamily properties are popular with real estate investors. 


The 2-15 unit complexes did get hit pretty bad. There was a lot of speculation, what seems like many years ago in 2003-2007. Many of these properties shot up sky high in price and found willing buyers. Of course, as we all know, most of these came crashing down and went through the arduous short sale or REO process to new owners who often got them at mid 1980's to mid 1990's prices and pretty much instant awesome returns.


The larger complexes in the commercial realm never really hit on bad times. What did happen is that construction of new units went down dramatically so rental demand for what was left was pretty high. Also some of the larger complex owners were able to more easily restructure loans, though I know a few owners who, through some diligent work were able to do the same with their fourplexes, but those are rare cases.


I got a little off track, though. 


A recent report  titled 'The Year Ahead, Real Estate's Best Bets in 2012' by Robert Freedman and Nichole Odijk DeMario in the Realtor magazine, indicates the following  trends.




2011


Vacancy rate: 5.4%  |  Rental rate change: 2.5%  |  Net Absorption: 238,398


2012


Vacancy rate: 4.6%  |  Rental rate change: 3.5%  |  Net Absorption: 126,621


2013


Vacancy rate: 4.5%  |  Rental rate change: 3.8%  |  Net Absorption: 102,687




They also note:




"Apartment rentals are once again expected to be the best-performing commercial sector."






 
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            <pubDate>Mon, 23 Jan 2012 18:30:00 -0600</pubDate>
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            <guid>http://www.phoenixmarkettrends.com/blog/the-life-of-a-phoenix-fourplex-over-31-years.html</guid>
            <link>http://www.phoenixmarkettrends.com/blog/the-life-of-a-phoenix-fourplex-over-31-years.html</link>
            <author>artur@inphoenix.com (Artur Ciesielski)</author>
            <title>The Life of a Phoenix Fourplex Over 31 years</title>
            <description> <![CDATA[ 
I was looking at comparables for a property and came across a fourplex I purchased in 2000 and sold in 2001. This was a repositioning strategy project. That means it was a mis-managed property with bad customers and low for the  market rents. It was easier to do these back then. 


This property has had an interesting history. It was built in 1981 before the 1980's real estate boom in Arizona and the year we moved here from Austria.




Built in 1981 - not sure of the sale price.






1988: Sold for $175,000






1991: Went back to the bank in a foreclosure sale for $73,000






1992: Purchased for $95,000 from the bank. 






2000: Purchased by me for $169,000 - some fix up, new tenants, higher rents.






2001: Sold by me for $245,000 - good cap rate. 1031 into something bigger.






2004: Sold for $286,000 - still good return for buyer.






2005: Sold for $336,000 - crazy.






2006: Sold for $440,000 - crazy.






2011: Purchased for $118,000 as a short sale.






2012: Could probably be sold for $150,000-$200,000




This is a clear example of why investment property should not be your own home. Your home is just that a shelter and home, but an investment is something else. This looks scary, but this property could have had the mortgage paid off 2-3 times over this period, assuming it was not purchased at peak and the mortgage would have been paid for by the tenants, the customers, but that is a separate topic.
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            <pubDate>Tue, 17 Jan 2012 09:54:38 -0600</pubDate>
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            <guid>http://www.phoenixmarkettrends.com/blog/buy-an-income-apartment-leased-or-vacant.html</guid>
            <link>http://www.phoenixmarkettrends.com/blog/buy-an-income-apartment-leased-or-vacant.html</link>
            <author>artur@inphoenix.com (Artur Ciesielski)</author>
            <title>Buy An Income Apartment Leased or Vacant?</title>
            <description> <![CDATA[ 
When buying income multifamily properties most investors prefer to have apartments that are leased. It means instant stability, instant income to cover the expenses and it means less hassle up front with having to market properties for rent, checking tenants out, preparing the units and organizing move in. 


For the most part it's often good to have units leased, but there are cases where it may be better just to have a vacant property.


Note: When buying 2-4 unit properties vacant properties are not worth less then ones with tenants. The value is not as dependent as with large complexes in the commercial realm.


Traditional Sales


When purchasing a property sold traditionally from an owner who has had it a while, many years and is not in financial distress then a property that is leased is a good thing. You can have some more assurance that the customers - tenants - have been selected well and are paying market or below market rents. In other words the property is stable and shall remain so with little hassle.


Flipped Multifamily


Then there are traditionally sold properties that are from new owners, or investors who recently purchased a property in distress on the open market or at a trustee sale with the specific intent of fixing it up, leasing and selling to a new owner. 


I would be more weary of these properties. Besides checking the quality of the remodel which is a topic for another post, I would do extra due diligence with the tenants.


These flippers have a tendency of leasing properties to tenants at rents that tend to be over market. Sure the units are remodeled and it may be fair to lease for a rent that is higher then other non remodeled properties, but often the tenants willing to pay more then they should are less stable customers who often have to pay more then market rent because of their credit situation.


Most people won't pay over market for long. These tenants may be gone when the lease ends or they may have a harder time paying rent and have to leave sooner. This is costly and a hassle, even if the eviction process is quick in Arizona.


Not all cases are like this: the key to keep an eye out for are over the market rents.


Distressed Short Sale and REO Multifamily


When an owner is in distress they are more likely to take tenants that are bad customers. They just put someone in that may or may not be able to pay the rent. These are last ditch efforts to keep a business going. Others will quit paying the mortgage and simply stick anyone in to 'milk that property for at lease a few more grand' before the bank takes it.


Not all owners are like this, but the decision to take this route is often born from necessity more the spite. 


Then once the owner decides to do a short sale or let the property go to the bank, they also let management go and let the property go into disrepair, favoring keeping cash in the pocket rather then putting into a property that they are losing. 


Many of these get taken over by a bank and banks can't always throw these tenants out. So it is up the the buyer to be careful.


As you can see, there are many situation where it would be better to just buy that triplex or fourplex vacant rather then having to deal with problem customers.
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            <pubDate>Mon, 12 Dec 2011 11:11:44 -0600</pubDate>
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            <guid>http://www.phoenixmarkettrends.com/blog/phoenix-arcadia-fourplex-sold.html</guid>
            <link>http://www.phoenixmarkettrends.com/blog/phoenix-arcadia-fourplex-sold.html</link>
            <author>artur@inphoenix.com (Artur Ciesielski)</author>
            <title>Phoenix Arcadia Fourplex Sold</title>
            <description> <![CDATA[ 
There are different ways to approach income property investing. Some go for the low income high return and high maintenance properties and others prefer low maintenance, good return stable properties and there are many approaches in between. All are good with their own respective pluses and minuses.


The Arcadia area in zip code 85018 has a more premium selection of multifamily properties, it is an in demand area by both renters and home owners and home prices can quickly go well beyond the market average of $86 per square foot the hundreds per square foot. 


A stable income property is even more important for those who are investing with a self directed IRA. Not everyone knows this, buy stocks and commodities are not the only things you can invest in with your IRA. 


#pmt-468-ad#





Above is another fourplex we just helped a client purchase. These types - premium multifamily - properties are easy to manage and own and they can provide a good steady income and rising property values, especially if they are in a good location like Arcadia.
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            <pubDate>Fri, 02 Dec 2011 17:31:14 -0600</pubDate>
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            <guid>http://www.phoenixmarkettrends.com/blog/small-multifamily-properties-for-large-returns.html</guid>
            <link>http://www.phoenixmarkettrends.com/blog/small-multifamily-properties-for-large-returns.html</link>
            <author>artur@inphoenix.com (Artur Ciesielski)</author>
            <title>Small Multifamily Properties For Large Returns</title>
            <description> <![CDATA[ 


Many real estate investors gloss over some of the most profitable real estate investment properties simply because they don’t understand them. The either hit the single family home route or just go big, but many times some of the most profitable properties are right in the middle. You don’t have to get the 50, 100, or 150 unit properties to start reaping nice return. 


Smaller multifamily properties can be very accessible and very profitable, they are essentially everywhere, they are easier to purchase and sell for that matter.


So let’s define small and medium multifamily properties. Small would be 2-4 units and would even fit into the realm of residential financing which is often easier to get then commercial money with lower down payment requirements and more lenient rules, enough so that some use the owner occupied option to purchase them with down-payments as low as 3.5% with an FHA loan or in some cases with 0 down in the case of VA loan.  Medium sized properties would be 5-50 units and maybe a bit more, but not much.


The advantages of investing in smaller multifamily properties include:




Small multifamily properties have less competition than larger properties. Buying smaller properties means you usually avoid institutional buyers who are more apt to pay a higher premium for a property than individual investors.






Small multifamily properties often have a higher cash on cash return. Often you can purchase smaller real estate that has a higher overall IRR and cash on cash return.






These properties require less equity to purchase. Because they are smaller and often considered just larger home you can buy them with a lower equity input. 25-30% is common and 10% is also available in some cases. You don’t need millions of dollars to buy them so they become much more accessible to those just starting off or expanding their portfolio.






Often these properties provide more of a profit per unit then larger properties.






There are more of these to choose from. It depends on your market and the market, but there are many more smaller properties to choose from then larger ones and they can be closer to where you are too.






Because these properties are easier to purchase and own they are attractive to more investors so your pool of buyers is larger allowing you to implement some strategies to sell for more.






They are commonly managed or mis-managed by less sophisticated investors who are afraid to raise rents or don’t track the market or just don’t know how to manage properly. This presents a great opportunity for repositioning and management improvements to increase income and return.



These are just some of the advantages of investing in smaller multifamily properties. You can easily keep yourself waiting for the big catch, or  you can start reaping nice profits by getting in the market and pursuing smaller properties, because it’s all about the return on your investment, not the size of  your portfolio.
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            <pubDate>Sat, 19 Nov 2011 17:16:35 -0600</pubDate>
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