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asset risk

Multifamily Asset Risk: How to Protect Your Investment

There will always be a need for quality housing. For real estate investors, this is what makes multifamily assets such an attractive option. 

Historically, multifamily has been one of the safer asset classes to invest in compared to other commercial property types. Unlike office buildings and retail space, which have been hit hard by remote work and e-commerce, rental apartments tend to have low vacancy rates, and steadily rising rents.

However, in recent years, rising interest rates, stagnating rent growth, and skyrocketing insurance premiums have raised the cost of running apartment buildings. 

A surge in permitting activity has flattened demand for multifamily assets. Last year multifamily investment volume fell by 60 percent from 2022 to $117.5 billion, marking the lowest annual multifamily investment volume since 2014.

A promising asset class may not be as desirable as it once was. With that in mind, how do you protect the value of your asset? Understanding the nuances of asset risk, particularly as it relates to your facilities and maintenance, is key to getting a return on your investment.

Why is asset risk management important?

Investing in multifamily real estate comes with various risk factors, typically related to the characteristics and condition of the building. The property’s location, curb appeal, architectural design, floor plans, and amenities can affect its occupancy rate and the revenue it generates. 

Additionally, as properties age, they necessitate ongoing maintenance and occasional significant repairs, like HVAC or roof replacements, which can be financially burdensome. Failure to allocate funds for these expenses can strain the operating budget and diminish returns on investment. 

Structural issues, non-compliance with building codes, environmental hazards such as termites, lead paint, and asbestos, as well as high crime rates in the neighborhood, can also lead to costly repairs, legal complications, increased security expenses, and potentially lower property values.

How to mitigate asset risk

Effective risk management is critical to protecting the value of your asset. Here are a few strategies to keep in mind:

Conduct due diligence – If you’ve ever purchased a multifamily property before, then you’ll know you need to do some homework first. It starts with due diligence. You have to perform unit inspections, lease file audits, and rent roll analysis all in a short amount of time. With Leonardo247’s Due Diligence platform you’re able to complete each phase of a comprehensive due diligence in one easy-to-use platform.

Perform preventative maintenance – Preventative maintenance is the key to asset longevity. Instead of having your on-site teams simply react to work orders, proactively address issues before they start to snowball. With Leonardo247, seamlessly turn your inspection findings into actionable tasks — attach photos, add details, and track progress effortlessly.

Tackle high insurance costs – Insurance premiums have risen across the board. In catastrophe-prone regions real estate investors are seeing double- or triple-digit premium increases (as much as 28 percent in some markets). In an effort to redefine risk assessment and insurance pricing in the multifamily industry, Sertis utilizes a proprietary risk assessment technology, designed to curb loss and revolutionize insurance underwriting. Developed in partnership with Leonardo247, the Live Risk Indicator (LRI) is an innovative scoring system that gauges the likelihood of insurance loss using exclusive, real-time operational risk data and property attributes. Enabling brokers and agents to provide competitively priced, risk-accurate insurance coverage. 

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Software to protect the value of your asset

Despite the current headwinds in the multifamily market, there remains reason for optimism. Most of the apartment supply is expected to be completed this year (roughly 670,000 or so apartments). But the supply surge is not expected to carry over into 2025 and 2026. This coupled with presumably improving interest rates gives multifamily owners and investors something to look forward to.

Using software, such as Leonardo247, can help you protect the value of your asset. Leonardo247 helps mitigate asset risk by enabling operators to easily access historical data on the property. With this information, operators can ensure they are conducting regular inspections and performing preventive maintenance to maintain a high standard of property management, ultimately protecting the value of the asset.

Take a proactive approach to asset risk management. Request a demo of Leonardo247 today.

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