Should You Own an Investment Property?

The September 2021 Alaska Economic Trends Magazine report on the Rental Market, “Many landlords we’ve surveyed consistently for years had sold their units in 2021.  Reasons included downsizing due to the pandemic and taking advantage of the recent strength in the real estate market.”  That strength has shown up in recent duplex, triplex and four plex sales.  In 2020, there were 121 duplexes sold from January 1 until September 1 YTD but that number increased to 181 in 2021.  The average price rose from $389,513 to $434,087.    The triplex sales also increased from 23 to 31 with an increase in sales price to $485,346 from $408,818.  The 2021 four plex is now worth $505,711 compared to $468,300 in 2020 propelled by 9 more sales.   Including all multi family above 4 units, there has been a  58% increase in sales volume from 202, according to Alaska Multiple Listing Service.

The pandemic and resulting eviction abatement did not hurt the multi-family market in Anchorage.  The almost historic interest rates have propelled the small investor market.  Owner occupied mortgage rates are as low as 3.5%, according to Madona Rhine-Stack at Alaska USA Mortgage Company.   Non-owner occupied rates are also still attractive but the downpayment of 15% makes it less doable for a small investor so unless a buyer is willing to rent out their owner occupied family home and move to a two bedroom apartment, they’re stuck making the larger down payment.

On the other hand, I’ve long been an advocate for a first time homebuyer to make their first real estate purchase a duplex.  After a year of owner occupancy, they can purchase a single family home as an owner occupant and keep the duplex as a rental on both sides.  Both sales can occur within the year or so can be owner-occupied with a lower downpayment as opposed to make the 15% down for non-owner occupied.

But perhaps the real question is “ Are you cut out to be a landlord?”  Most of our low density multi-family inventory is more than 30 years old.  The vast majority was built in the 1980’s.  I  built 20 unit apartment buildings, duplexes and four-plexes during that decade.  But I don’t wear a carpenter’s belt.  If the toilet leaks; the tenant  clogs up the garbage disposal or the lawn needs mowing, I have to hire someone to take care of it. Frankly, I’m even too short to change out a ceiling light bulb.  And if it is in the middle of the night, I had to pay overtime if I can find someone to take my call. As our inventory ages, the cost of every day maintenance and repairs continues to increase.  Most small investor multi-family pro formas I see do not have adequate reserves for repairs.  Furnances don’t last for forty years; neither do roofs.  Water heaters have a life expectancy of 10 to 20 years.  Carpet needs to be replaced every ten years.  The small multi-famiy investment is perfect for someone who can do their own property management and repairs.  You cannot hire someone to care as much as you do about the property.

So, yes, despite the pandemic and rent abatements, the statistics give you a good reason to purchase a small investment. Most multi-family zoned vacant property has been built out as stacked condos and townhouses.  There is a significant need for new multi-family housing so even the 40 year old duplex is a good investment, just so long as you are willing to do the maintenance and repairs yourself. And buy a carpenter’s belt.