The business savvy required to own and/or operate multifamily residential properties is, we admit, not complicated. This is because, over any reasonably long period of time (say 6 months or more), the cash flow for a given property is actually highly predictable. Income (rents) is generally predictable (it certainly won’t surprise to the upside!), and barring the advent of unexpected major repairs, so are costs. But here’s the thing: over an even longer period (say 5+ years), even major unexpected repairs and dips in income (due to vacancies or delinquent tenants) should be very easily weathered, so long as reasonable assumptions are made.
But the risks and uncertainties, we’d argue, are nothing compared to many business models. For example, there isn’t really any product to develop; there are no true research or innovation costs to bear; marketing costs nowadays are minimal; and market/pricing research is essentially done for you (subject to change over time, of course).
So what’s the point of all this? Well first of all, without offending anyone, we’d like to assert that this is a hard business in which to fail. Secondly, we’d suggest that owners/operators
You’ve probably come across the PITI at some point. For the uninitiated, this refers to four of the very common recurring costs of real estate ownership: principal, interest, taxes, and insurance.
Obviously, these four costs are not universal: properties without associated debt won’t have a principal or interest cost. Nor are they comprehensive: many other types of cost (for instance, repairs and property management fees) certainly abound.
But these four costs are generally lumped together for the a few reasons. First, they’re common—relatively few instances of real estate are owned without these costs. Second, they’re rather predictable, at least in the near term. Principal and interest (in aggregate) are generally a fixed monthly cost (for the duration of the mortgage), and taxes and insurance costs usually (but not always) are due at fixed intervals and gradually rise with time. Third, these costs are the ones lenders are most concerned with