Biggest Risks with Multifamily Investing

[Charlie F.]

Hey BP- I'm a new prospective RE investor, have done my research and have capital to deploy, yet to do my first deal, but looking in Rochester NY, as Jake&Gino referred to it as the "cash flow capital of the world". 

There are some very clear benefits to multifamily RE investing. But what about the risks? In particular, I'm wondering if I buy a property, lets say it cash flows at $2K per year. What happens if there's a major problem like needing to replace the sewer tank, or a new water heater or something? What does insurance cover? It seems that cash flow could get wiped out very easily, does anyone run into these issues? Any other big risk factors with a multifamily cash flow strategy?

[JJ GONZALEZ II]

Charles

Investing is a risk, multifamily is simply a different form of risk.  You don't mention how large a unit you are talking about, but as an example we are buying a 50 unit in the Midwest.  When we did our roof inspection 3 of the 4 roofs need to be replaced at a cost of 64,000.  That's a lot of money,but had we not caught it now in a year or two we would have had to take perhaps all of our cash flow for the year to replace them.  Things happen when you rent a property, toilets brake, sinks overflow, glass brakes, you need to replace a hot water heater.  Insurance doesn't cover most of these situations.

Make sure you have a good cash on cash return and that you put aside a good amount monthly for capex (capital repairs).  The last thing you want is to have a major repair and not have the money on hand to handle it.

Regards JJ