Investing in multifamily is a great way to generate income and build wealth. However, many property owners face rising operational costs. Cash flow is decreasing, and tenant-related headaches are increasing. Property owners are starting to wonder if the juice is worth the squeeze.
The landscape is changing and property owners’ goals are shifting. And frankly, there are other opportunities beyond multifamily that don’t require you to pull your hair out over late-night maintenance calls or tenant turnover.
The Multifamily Struggle Is Real
Rising Costs, Falling Margins
According to the National Multifamily Housing Council, operating expenses for multifamily properties have grown 9.3% (1)—outpacing rent growth in many markets in California.
Tenants, Trash, and Toilets
Managing tenants has become more challenging. Insurance premiums, repairs, tenant complaints, and higher turnover rates don’t exactly scream passive cash flow. Many rental property owners are worried about increasing property management headaches will only intensify.
The Equity-to-Income Conundrum
According to Bankrate.com, about 48.3% of mortgaged properties are “equity rich.” Their outstanding loan balance is less than half the home’s value, which means that a good amount of equity is tied up in property equity. But it’s not generating the kind of cash flow you might expect relative to that value (2).
If your goal is to stop working for your tenants and start enjoying more time on the beach with family and friends, it’s time to start looking at alternatives.
Exploring Alternative Investments
There are many options available out there, ranging from Industrial to self-storage. Today, I’ll be focusing on a passive option that many of my clients have invested into over the years: net leased properties.
What Are Net Lease Properties?
Think of net lease properties as the “set-it-and-forget-it” investment. Instead of stressing over tenants and maintenance, you lease out the property to one tenant that is responsible for most, if not all, of the operating expenses, including taxes, insurance, and maintenance. Think drug stores, restaurants, auto repair shop, warehouses, or even medical facilities.
The attractive aspect of these investments is that most net leased properties typically come with long-term leases by credit-rated tenants, which means predictable and stable cash flow and fewer headaches over the investment period.
Is It Time for You to Diversify?
Multifamily investments are within most investors’ comfort zone. At the end of the day, everyone needs a place to live. The one thing that remains constant is change, and the goals and objectives you had for when you acquired your multifamily property, are most likely no longer the same today. Now may be a good time to explore other options that may fit better into your plans.
Below are a few questions you may want to ask yourself to see if it makes sense to start looking into alternative options:
- Are you tired of the stress and labor that comes with managing tenants and maintenance?
- Would you like to unlock some of the equity tied up in your multifamily properties?
- Are you seeking more predictable cash flow with less day-to-day management?
If you answered “yes” to any of the above, this might be the nudge you need to start exploring options like net lease properties or other alternative investments.
Where to Go From Here
The key is to align your strategy with your life goals. Want less stress? More passive income? More time to travel?
Reach out to me with any questions or if you need help figuring out your strategy. Because, at the end of the day, investing should help you live life on your terms—not turn you into an overworked landlord.
Footnotes
(2) https://www.bankrate.com/home-equity/homeowner-equity-data-and-statistics/
Amit Urban 