Multi Family and Commercial Housing: Do You Know What You’re Selling?

Kate Berard, Associate Broker
774-644-6131
KateB@mellogroup.com



Investing in multi-family or commercial housing can prove rewarding, in fact as the famous Andrew Carnegie adage surmises: millionaires are made that way.  From all views, the market sits amid a booming seller advantage, despite a global health pandemic. A lack of inventory and low interest rates have created somewhat of a frenzy among buyers hungry to secure that first or additional investment – why then are multi-family and commercial housing sales down this year?  Why are some of those investments sitting idle in such a fast market?

Selling or purchasing a multi-family or commercial housing property is substantially more complex than selling a single-family home. Where this market has proved that the willing buyer will overlook inadequate seller preparation, this is not the case for the savvy investor. Purchasing multi-unit properties comes with a heightened risk level; add a global health pandemic, unemployment and eviction moratoriums and that balance tips even further. 

How then can the ready seller and savvy buyer adequately plan and invest? The answer lies in how you prepare, market, manage, and mediate the sale of the investment, and what professional you trust to do so. But first, do you know what you are selling? Before we jump into the process, it is critical that you understand this: for you, this is an investment but for your tenants, this is their home. Keeping this dichotomy front of mind will lead to ultimate success.  

Prepare and Organize

Who are your tenants? Where are your leases? Receipts? Rent Ledgers? Property Condition Statements? Security Deposit Information? It is critical that you first establish occupancy periods and tenant rights, thoroughly reviewing your lease documents. Is there a clause addressing the sale of the property? Did you just renew a year-long lease, or are your tenant’s month-to-month? Is everyone paying? Any subsidized housing considerations? Any long-term tenants in place? Is there an “owner’s unit”? Any vacancy? Are you up to code? Any outstanding habitability issues? What are your expenses? Insurance, refuse, water and sewer? How much rent do you collect, and is it fair market? What utilities, if any, are included in the rent? Any other costs? Have you updated and do you have information on “big-ticket” items: HVAC, electric, roof, windows? How about lead and asbestos abatement? How’s your curb appeal? Any rules, regulations, or local laws affect the transfer? 

Remember, this is an investment for your potential buyer, it should look that way. Preparing adequate financial statements and organizing tenant leases and corresponding documentation, together with ensuring common areas are cleaned up and curb appeal obtained, paints the clearest picture as to what the buyer can anticipate in their ownership. Bottom line: Preparation and organization increase your return too! 

Be Transparent. Offer Security.

This is your investment; this is your tenant(s) home. The last thing you want is a soured relationship with your tenants because you overlooked the importance of tenant possession. Not making this reality concern number one can lead to lack of access, refused showings, bad-mouthing of the property, and non-payment of rent – ultimately delaying or thwarting the sale. Remember what you are selling: your investment, their home. It is critical to be transparent from the start and include your tenants throughout the process. Show your tenants you care about health and safety by developing a clear schedule for showings and sanitization, mask-wearing, and social distancing. Require virtual tours and drive-by prior to scheduling in-person access. Ask your tenants if they have any concerns, and what schedule works best for them. Consider discussing their plan for tenancy moving forward. This is a good time to get a feel on whether they planned on staying put for a while or are looking for something new. Working together with your tenants at this juncture can open the door to agreed lease modification, or even termination with assistance. This is the time to offer up your willingness to assist in the most favorable transition for all involved. 

The more transparent you are, the more understanding of the fact that your investment is their home, the easier the process and transition. Including your tenants and providing them with all relevant information only serves to lessen the fear of housing insecurity that can come with a sale, possible eviction, and unknown new ownership. 

Get it to Market.

Along with preparation and organization comes a solid marketing plan. The search for real estate for most starts online. Professional photos, virtual tours and floor plans go a long way when selling multi-units. If potential buyers are given the clearest, most detailed picture of the investment property from the start it can help narrow down in-person showing requests to those that are seriously interested and lessen the impact on your tenants. Utilizing all social platforms in regular and creative ways can broaden eyes on your property. This is a no-brainer. Your Realtor and associated brokerage should be on top of social media and always ahead or on top of the marketing trends to get your property the most access and most favorable view.

Time is of the essence here as well. What are necessary lease timing considerations? Have you solidified a viable showing schedule that works for all parties? What about notice requirements? Are you hosting open houses? Are all tenants on board? A well-managed sale starts with prepared and knowledgeable marketing, time considerations, and informed showing flow. 

The Moratorium: Facilitate. Mediate. Close.

What if the tenants do not cooperate? What if they have not been paying rent because of job loss or health issues, or otherwise? What happens now? 

The health pandemic brought with it economic insecurity, unemployment, and housing instability for many. Despite the incredible efforts in science and medicine bringing the vaccine to every state in record time, it is unreasonable to believe that some of the economic insecurity, unemployment and housing instability will not continue. At the start of the initial spike of Covid-19 and related shut down, national and state officials halted evictions and foreclosures and funded social initiatives to ease financial arrears in housing and maintain tenancy.

The state moratoriums on evictions in Rhode Island and Massachusetts were lifted in June and October 2020 respectively, however changes in the process remain and sweeping housing reform seems inevitably on the horizon. In Massachusetts for example, the Housing Court has moved to a two-tier system, further pushing tenants and landlords to mediate, work together, and utilize available resources through RAFT and ERMA to preserve tenancy. The State of Rhode Island has also pushed for landlords to utilize the Safe Harbor Housing resources available through United Way of Rhode Island to ensure the landlords are paid, and the tenants secured in their housing. 

The CDC’s halt on evictions is still in effect and has the potential to be continued or even expanded for “covered persons” and both Massachusetts and Rhode Island are following the declaration mandates. As a property owner, you can take the first step to help your tenant apply for available resources, preserve the tenancy and ensure your timely payment. Understanding tenant rights, available resources, and a push globally and locally to preserve housing and keep families in place will help to inform your sale and how you move forward with your occupied investment. Know that working together with your tenants often results in a MUCH better outcome for all parties.

Despite the current pause on all things, real estate sales continue to boom. If you listed your investment property this year and it is not moving, I think I know the reason why. Give me a call to discuss the best ways to get it back on market, work with your tenants, and have a successful sale. 

RAFT & ERMA: https://www.mass.gov/info-details/emergency-housing-assistance-during-covid-19 

SAFE HARBOR HOUSING: Safe Harbor Housing Program – United Way of Rhode Island (uwri.org)

CDC Declaration: Federal Register Notice: Temporary Halt in Residential Evictions to Prevent the Further Spread of COVID-19 | CDC