In this video, Joel, Principal Broker, discusses the disadvantages of owning a multi-tenant property.
Joel states that unlike a single-tenant property that is oftentimes just collecting a monthly rent payment with little-to-no maintenance, this property may require more work.
How does a single-tenant property differ from this type of property?
Unlike a single-tenant property that is oftentimes just collecting a monthly rent payment with little-to-no maintenance, a multi-tenant property has several tenants and may require more work.
What is an example of a multi-tenant property?
An example of a multi-tenant property that is often the most passive is a shopping center that has a Starbucks, T-Mobile, and Aspen Dental with 10-year leases and a 10% rental increase every 5 years. Typically this type of investment requires a property management company and usually only requires checking in with tenants 1-2 times per month.
What is the typical workload required from these types of properties?
As you move along the spectrum, away from the investment-grade retail tenants within a strip center to 1 national tenant and a few regional tenants, and then to mom-and-pop tenants, the amount of work required often increases. With mom-and-pop tenants, property management may have to check-in with the tenants more frequently, the investor has to heavily underwrite the tenants, you may have to review the net worth of the business backing the lease, they may have to disclose financials and sales, etc.
Does the additional workload increase the amount of cash flow from this investment?
Although the workload may increase by investing in this type of property, the return is typically higher than one from a single-tenant property in a lot of cases. It’s important that when you’re evaluating these types of properties that you have a commercial broker specialist, an investor, and developer that understands all facets of owning this type of property. This can help with the process of doing the proper due diligence when looking to purchase this type of property.