Costco vs Walmart as business models in Multifamily REI

[Nick Bruckner]

Some landlords/multifamily investors don't think much about their tenants' best interests and might have pride of ownership in their own home, but not in their portfolio of properties. No one aspires to be a slumlord, nor does anybody aspire to have low profit margins as an investor. There is a spectrum between profitability (value to the investor) and the value provided to the tenant. Everybody wants a deal. A really good deal for a tenant (cheap rent in a nicely maintained and updated place) can be a bad deal for an investor and vice versa (high rent in a place that is poorly maintained and not updated).

 When interest rates were lower and updating properties wasn't so expensive, it was easier for investors to to afford improvements for their properties, or to not always press the gas on increasing rents. But now, the numbers can be tight.

As we help multifamily investors evaluating properties, we run numbers of rental income and expenses. Rent levels and expenses both have a huge impact on ROI, and properties with current market rents are more valuable and sell at higher prices points.

I was recently talking to an investor client just getting started in REI who wants all of his properties to have a threshold of quality he is proud of (while the numbers also make sense). He wants to be profitable, but not at the expense of providing legit value to the tenants. He doesn't want to be Walmart (low quality products, poor care of employees, profit is highest good). He wants to be Costco (higher quality products, takes care of employees, still profitable). It's harder to do this now than if he'd bought a building a few years ago.

I have another investor friend who made it into the newspapers because they gave all the renters in their 15 units one month free rent in December. Not every investor is in a place to do this, but I think that if more investors put themselves in the shoes of tenants who are often living paycheck to paycheck, and decided to be impractically generous them when they can afford to be, the world would be a better place.