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Multifamily Minute Reader Reflections: A Look at Property Sizes
We asked our 45,000 Multifamily Minute subscribers how large of a property they typically prefer. Learn more about the benefits of large — and small — properties.
How large an apartment building you invest in has an impact on everything from operations to the ease of selling it years down the line.
A couple weeks ago, I asked our Multifamily Minute subscribers for the size range of apartment buildings they prefer to buy. Let's dig in and see what the results were — as well as the pros and cons of going large or small.
Survey Results
Preferred Investment Property Size | Percent of Respondents |
|---|---|
2 to 4 units | 31% |
5 to 10 units | 32% |
11 to 20 units | 4% |
21 to 49 units | 16% |
50+ units | 17% |
Most of our participants indicated that properties in the five- to 10-unit range were the best fit for them…but not by a lot. Smaller buildings — even duplexes — were popular as well, and about one-third of our respondents typically prefer to focus on properties with more than 20 units.
Is Bigger Really Better?
With such a wide range of responses, this week I'd like to break down the key differences in investing in a large or a small property. The short answer on which property type is best, however, is largely dependent on what you're looking for an investment.
Not that helpful, I know, so let's focus on a few key aspects of multifamily investments and how they differ between the smaller and bigger properties.
Maintenance
Think about it. Which do you think would be easier to maintain? Twenty 10-unit properties or one 200-unit property?
If you went with option B, congratulations — you're absolutely right. The reason is that larger properties benefit from economies of scale. This is true with building systems, structural issues, landscaping, general maintenance, and even renovations.
If all of your units are under a single roof, using one large boiler system, and share one large parking lot, it's more cost effective to manage compared to many units spread over multiple assets.
Property Management
Similar to the economies of scale in maintenance, larger properties also benefit in terms of property management. But, there is one caveat: Larger properties will nearly always need professional management teams to look after them.
However, a three- or four-unit property? That's something you can potentially handle yourself or contract out to a smaller, local (and cheaper) management company.
Financing
One great thing about multifamily investing is the sheer number of financing options available to apartment building owners. If you're relatively new to the game, however, most of the larger-dollar financing products may be out of reach, making assets with tens (or hundreds) of units a dream…at least for now.
On the other hand, a duplex can often be financed using a conventional residential mortgage. Add in the existence of Freddie and Fannie's small loan programs, and there's a lot of attractive options out there if you're starting small.
Income Stability
Larger properties have smaller ones beat, hands down, here. If you have five units, a vacancy could be crippling. Two units vacant, and you're likely in serious trouble.
If you have 50 units, though? It becomes much easier to predict your rental revenues, as long as you've set your rents correctly. Sure, you may have a few empty units at any given time, but they have a much smaller impact and are typically priced into your income calculations and projections.
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Our Previous Survey
The last survey I ran asked about specific aspects of a multifamily (not size, though) that were important to you. While a majority of our respondents noted that location is key, another critical factor jumped out. Read more.