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Fischer: Property management one way to generate surplus wealth

By Jen Fischer - Special to the Standard-Examiner | Apr 26, 2024

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Jen Fischer

Last week, I came across a comic strip that displayed a sign in front of a farm, it read; “McWit’s Farm, Auto Repair, Financial Consulting, and Lite Puff Pastries.” The tagline below it had the farmer saying, “The only way to survive in the current economy is to diversify.” I noticed that particular strip because I happened to be closing on my client’s sale of his fourplex that day. I thought it was apropos.

Real estate is a great way to expand an investment portfolio. While most people have retirement accounts, stocks, bonds and mutual funds, some decide to include investment property in their portfolio as well. It’s not a bad decision … for many. Real estate typically appreciates over time. While some investments don’t keep pace with inflation, real estate, in general, can provide a hedge against inflation. As inflation rates increase, real estate generally does as well. It can become a pretty sweet gig, financially. However, it is not for the faint of heart, the easily offended, the timid or the fair weathered. It is not something that can create fast liquidity, nor is it the right fit for anyone who is gullible or easily agitated. It is, however, a great way to create passive income and reap tax benefits while growing equity, especially when investing in multifamily units.

A multifamily property is any property that consists of more than one unit. From duplexes, containing two units, all the way up to the several hundred units contained in a large apartment complex.

The smaller-scale multifamily properties are best for first-time investors. This is a great way to dip a toe into the rental property waters. In fact, living in one of the units provides even wider benefits. A buyer can utilize an FHA (3.5% down) loan product for a multifamily unit, up to four units, if one of the units is owner-occupied. They can also count the rent in the other units as income in order to qualify for a higher amount than they would on their own. This is also true for a conventional type loan (5% down). This is a beautiful thing. While it isn’t a “fast track” to wealth, it is certainly a steady road to financial stability and comfort.

While I wish I had had the foresight to do this earlier in my life, I am currently doing the equivalent of this in a commercial setting. I purchased my office building several years ago, kept a room for myself to work out of and then rented the rest. When COVID-19 hit and everyone went home and stayed there, I converted my spaces into salon suites and rented those out instead. Few people will sacrifice their grooming habits, even through some of the worst of times.

There is, however, a decent-size learning curve to the process of renting out multiple units. The question of management quickly comes into play. For some, the management of such units can become a full-time job. Between collecting rents and deposits, vetting new tenants, scheduling repair and maintenance work in each unit, handling potential emergency repairs (since some tenants don’t report needed repairs until it becomes an emergency), and consistent “policing” of rule breaking (an extra tenant or pet, for example) among the tenants, it can consume a fair amount of time and resources. Hiring a property manager can take care of these day-to-day responsibilities for a small fee and they are worth their weight in gold in my (unsolicited) opinion.

Fortunately, my tenants pay their rent on time, don’t bring their pets and replace the roll of toilet paper when it runs out. And if I’m ever running to an appointment with my hair uncombed, they take care of that as well.

Jen Fischer is an associate broker and Realtor. She can be reached at 801-645-2134 and jen@jen-fischer.com.


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