How much of a liability are pools in multi-family properties?

Question

Hello,My wife and I are currently in the market to purchase two 40-50 multi-unit complexes or one 100+ multi-unit complex in the Sacramento/Stockton/Modesto area. Most of the properties we have come across have pools in them.

My wife does not want to purchase a property with a pool as she feels it would bring unwarranted liabilities associated with it. I don't see any issue with a pool as 1) anything a tenant does on your property is a potential liability (e.g. falling down the stairs, etc.), 2) An umbrella policy for the property with sufficient liability coverage would cover any liabilities arising from a pool incident (or any incident).

Are there any reasons why we should not purchase a multi-unit complex with a pool in it? Has anyone been deterred from pools due to an incident?

Thanks.

Andrew Cushman · Answer

@Henry Perez, I'll add my two cents gleaned from owning about 1,700 C and B class units, some with pools and some without.

Bottom line: when I'm deciding about buying a property with a pool, worry about liability usually has little place in the decision.  Liability is something to be managed and mitigated, not feared. Pool or no pool is really just a market driven decision.

Let's get this out of the way: If you own a significant number of units, especially in class C, you WILL get sued, even if you do everything perfectly.  It's just part of doing business.  However, if you maintain, operate, and manage your properties properly and keep the appropriate types and levels of insurance, it's generally not an issue.  You pass it off to your insurance carrier and they handle it.  Also, if you have done your legal structure properly, it should never get to you personally. Now, don't take me wrong here: if you see something that is an obvious liability and it's something you can't fix, be careful about getting involved.  While tenant related lawsuits typically don't amount to much, you don't want to tempt fate!

So, back to the pool.  As @Jeff Greenberg said, pools are generally an important thing to have in B and A properties.  With C properties, I still like to have them as it's an amenity that many other C properties won't have.  The reason many C properties have them filled in is related to age: at some point, that pool was 20 or 30 years old, and rather than spend a ton of money on major repairs, the owner just filled it in.  To me, nothing better communicates "we've given up on this place" than a kidney shaped patch of grass surrounded by decaying pool decking!

@Deanna McCormick is absolutely correct - If you plan on self-managing.  Typically the local municipality has all kinds of rules, regulations, and inspections to deal with. Plus, you need to operate the pool and keep it clean, which takes time and expertise.  So if you're going to manage the property yourself, you might want to skip one with a pool.  On the other hand, these are all things a good property management company can handle for you.  We use third party management for all of our deals, and the ones with pools are no more work for us than the ones without (again, it's the management company's job to take care of the pool).  As far as expense, in the big picture, it's usually minimal.  Plus, you're typically getting higher rents and/or higher quality residents by having the pool.  Just make sure all the expenses are in the historical financials, and that you factor it into your proforma.

@Andrew Campbell said it well: if it is a standard amenity in your market, your tenants are going to want it, it adds value and enjoyment to their lives, and helps you compete.  Just make sure you are properly insured, treat it as another cost of doing business, and go get yourself a great deal!

Andrew

P.S.  I live in California and have experienced many hot days in Sacramento.  Stockton and Modesto seem even hotter.  If I were living there I would want a pool!

Jeff Greenberg · Answer

I don't like pools in C properties, but feel that it is important in a B or A property.  Most C properties have them filled in.  You can always put in some other kind of water feature.  In the colder Sacramento area, it may not be as important as in areas where it is very hot.  It is also going to depend on what clientele you are trying to attract.

Deanna McCormick · Answer

COST to Maintain,, you need a certified pool operators license,, for person responsible to open and close pool daily when the pool is in use.. Water cost to constantly keep water filled (evaporation) and electricity to run pump and filter.. Chlorine,, pools use a huge amount of chlorine to keep within the standards of inspections.. You have to have an inspection at least once a year,, gates, fences, equipment.

Pools attract some renters but personally if you can get away with out one,, I"D jump at that property first.

And yes it's a liability,, insurance isn't that costly, but if you have a drowning,, your going to risk lawsuits.. I know,, I ran several properties with a outdoor pool,one indoor, thankfully no injuries on my watch,, but we had a child drown at a property owned by same company.. they sued... anyone in that situation would.

Listen to your wife..

or go out and operate a outdoor pool for a month..so you have an idea of what's required :)

Henry Perez · Answer

@Andrew Cushman

Thank you very much for your time and for your thorough explanation. I greatly appreciate it.

This is a topic my wife and I are constantly discussing as there are many great properties in the 30-40 unit range which have pools. For the same reasons you mentioned, I do not have an issue with pools as each property we own will be in an LLC and each LLC will have its own umbrella policy. I view pools as a risk, much like everything else that comes with real estate, but one that could be mitigated. In addition, I don't want this to be a hindrance in the future as we expand our portfolio and look to invest in Arizona and Nevada where pools are pretty much a requirement in any multi-unit property.

Every multi-unit property we invest in will be managed by a management company. We will not be managing the properties directly.

I have saved your podcast #170 on my Apple Podcasts app and I listen to it at least twice a month to both motivate me and to remind myself of my goal of both reaching 1,000 units and being able to raise money. This is a goal that I live and breathe on a daily basis.

Thank you for your inspiration.

Henry

Andrew Campbell · Answer

I agree with @Jeff Greenberg about your competition and what tenants you are trying to attract.  Nearly all the properties we look at and operate in Texas have pools, its almost a must--particularly in the 100+ unit space you mentioned.

If that is a standard amenity your tenants are going to want and it adds value to their lives, I chalk it up as a cost of doing business.

Todd Dexheimer · Answer

As jeff said it is the class of the property that maytets. I wouldn't worry about liability as much, just be sure your insurance is good and you operate it properly/safely

Jeff Greenberg · Answer

@Deanna McCormick is correct as far as the aggravation and the additional risk and liabilities. Your big expense on the pull is the electricity for the pump.  Chemicals and water loss does cost some, but not as significant.  If you have to heat it, then you are talking a lot more money.  I have run pools from backyard size to college sized commercial pools and would only either contract it out or have the maintenance people sent out for training.

The big key here is, what is your competition doing? With California always in a water shortage, and the market you are looking in having colder weather, some other amenity may make up for not having a pool.  Look at your demographics and see what you can add.  Remember a pool can always be filled in, and used for something else, like a playground, picnic area, sand volleyball court, etc.

Henry Perez · Answer

Thank you very much @Deanna McCormick & @Jeff Greenberg. Your advice is greatly appreciated!

Account Closed · Answer

Sacramento is many things, but cool is not one of them! It's hot here in the summer!

Dave Peterson · Answer

Agree with Embert.  Sacramento is not cool.  I'm in the suburbs and the expected high is 105F today.

How much of a liability are pools in multi-family properties?

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