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5 Key Multifamily Risks and How to Mitigate Them

Owning and managing multifamily properties is more than just business—it’s about creating vibrant, thriving communities. But let’s not sugarcoat it – the path is riddled with potential pitfalls. Recent years have seen owners and operators of multifamily real estate hit hard by rising interest rates, stagnating rent growth, and skyrocketing insurance premiums that can undermine both your peace of mind and financial returns. Being prepared is your best strategy.

That’s why we’ve broken down the five core risks—Financial, Legal, Operational, Reputational, and Asset (collectively known as FLORA)—you need to manage to keep your properties running smoothly.

Financial

Financial risk is not just about the return on your investments; it’s about safeguarding the operational cash flow. From collecting damage chargebacks to sky-high insurance premiums, financial hiccups can be a real headache. For instance, a staggering 29% of housing providers reported a 25% increase in insurance premiums for 2022-23 renewals, according to a report from ndp analytics and commissioned by the National Leased Housing Association (NLHA).

Risk Mitigation Tip: Keep your financial health in check with rigorous documentation, standardized property procedures, and regular financial audits. Training your staff on these practices can also greatly reduce financial discrepancies.

Legal

Balconies might sell picturesque views and dreamy sunsets, but they can also present significant legal liabilities if not kept up to code. The same goes for communal areas like playgrounds and pools. With legal verdicts ballooning—from 2015 to 2019, the average verdict in the National Law Journal’s Top 100 Verdicts more than tripled from $64 million to $214 million—it’s crucial to stay on top of local codes and safety regulations.

Risk Mitigation Tip: Use technology to your advantage. Solutions like Leonardo247’s Municipal Code Tool can transform updated legal requirements into actionable compliance tasks across your properties, ensuring you’re always ahead of the curve.

Operational

Operational risks lurk around every corner, from a leaky roof to a broken elevator. These are the gears that keep your property running, and any slip can cause significant disruptions. How are you keeping track of your day-to-day operations?

Risk Mitigation Tip: Implement a robust property operations and maintenance platform, like Leonardo247, which keeps operational procedures front and center, ensuring your team performs tasks consistently and efficiently. It’s about turning reactive maintenance into a proactive routine.

Reputational

“It takes many good deeds to build a good reputation, and only one bad one to lose it.” – Benjamin Franklin.

Keeping residents happy is essential. In the digital age, a property’s reputation can be its quickest downfall or its best selling point. Negative reviews spread fast and can deter prospective residents faster than you can say “lease renewal.”

According to the National Apartment Association, 89% of renters rely on online review sites when searching for an apartment, and the reviews play a critical role in helping them narrow down their options. Furthermore, 70% of renters base their decision to visit a property on its reputation.

Risk Mitigation Tip: Regularly engage with your tenants through surveys and quick response times to maintenance requests. Visible, proactive management can boost satisfaction and help maintain a positive online presence.

Asset

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

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, a surge in permitting activity has flattened demand for multifamily assets. How do you protect the value of your asset?

Risk Mitigation Tip: Performing the proper due diligence on the front-end can go a long way. But the real key to asset longevity – preventative maintenance. As your properties age, they necessitate ongoing maintenance and occasional significant repairs, like HVAC or roof replacements. This not only extends the lifecycle of your property but also enhances resident satisfaction and retention, ultimately safeguarding your investment’s value.

What You Can Do

By managing these FLORA risks, you can not only prevent potential crises but position your multifamily properties for sustained success and growth. Being proactive isn’t just an option; it’s a necessity. Take a proactive approach to risk management. Request a demo of Leonardo247 today!

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