The Outsized Influence of Small Multifamily Properties

When you think of multifamily properties, the image that probably comes to mind is a towering high-rise or a sprawling apartment community with hundreds of units. And you’re not wrong. Publications like the Wall Street Journal and CRE Daily have highlighted the increasing trend toward larger multifamily developments. Buildings with 200 or more units have surged by 17% in the past three years, and high-rise apartments now make up 14% of new multifamily supply. Why? Rising construction costs are driving developers to add more units to make their projects profitable.

But amidst the skyscrapers and mega-complexes, it’s crucial not to overlook the small yet mighty players in the multifamily industry: small multifamily properties. These buildings, typically with five to 49 units, play a critical role in the multifamily housing market and deserve our attention and support.

Small But Mighty: The Role of Small Multifamily Housing

A recent report from the Terner Center for Housing Innovation at the University of California, Berkeley, sheds light on the significance of smaller multifamily properties. These buildings make up about 17% of rental housing nationwide, accounting for approximately 500,000 properties across the United States. They’re an essential source of unsubsidized affordable housing, which is increasingly vital given the nationwide shortage of 7.3 million affordable rental homes, as reported by the National Low Income Housing Coalition.

Understanding the unique characteristics of these properties and their owners is the first step toward ensuring their continued vitality. Small multifamily properties offer a blend of community-oriented living and affordable rents. They are critical in providing housing to lower-income populations who might otherwise be squeezed out of the market.

Who Owns Small Multifamily Properties?

Imagine a small apartment building nestled in a quiet neighborhood, owned by someone who lives just a few miles down the road. The Terner Center report reveals that about 70% of these properties are owned by individuals or one-person LLCs, with only 15% having corporate owners.

Consider John, a retired schoolteacher who invested in a modest five-unit building to supplement his pension. He represents about one-third of small multifamily owners who are retirees. On the other hand, there’s Sarah, a professional juggling a part-time job and managing her eight-unit property, part of the 36% who are either self-employed or have other jobs.

These owners are not just investors; they are hands-on managers, with nearly half living within eight miles of their properties. For 44% of them, rental income comprises at least half of their gross income, making these properties crucial to their financial stability. Almost 50% of owners report that most or all of their units rent at below-market levels, primarily to retain good residents. With so much hands-on commitment and deep financial stakes, small multifamily property owners are a community that is especially vulnerable to technological disruptions and market shifts—unfortunately, they’re also a generally underserved arm of the multifamily industry.

The Challenges Faced by Small Multifamily Owners

Owning and managing small multifamily properties comes with its own set of challenges:

• Inadequate Cash Flow: Smaller properties with fewer units and lower rents often struggle with cash flow, making it difficult for owners to cover their expenses and maintain financial stability.
• Time Constraints: Owner-managers of these properties are incredibly busy, often single-handedly handling all aspects of management and maintenance.
• Deferred Maintenance: Limited financial reserves and difficult access to financing mean that many owners cannot afford to keep up with necessary repairs and upgrades. As a result, 25% of owners admit to postponing maintenance tasks.

How Conservice Empowers Small Multifamily Properties

Our industry has long relied on utility management solutions to streamline operations and boost net operating income (NOI) by addressing hidden expenses. While these solutions have proven effective for mid-tier and larger portfolios, small properties often struggle to justify an extra expense. However, Conservice changes the game by offering solutions that significantly ease the burdens faced by small multifamily property owners.

Utility Management: Our utility expense management software ensures bills are paid on time and accurately, resolves errors, and assists with budgeting. This frees up time for small property owners with less headcount to focus on other critical issues.

Cost Reduction: Small property owners are especially vulnerable to leakage and often operate on comparatively thin margins. By helping owners avoid overcharges, late fees, and missed savings opportunities, Conservice helps preserve precious cash flow.

Maintenance Prioritization: Our data and analytics identify unseen opportunities for improvement and help prioritize maintenance investments for the best return on investment.

Sustainability: Smaller multifamily properties tend to be older and less energy-efficient. Conservice’s data can help owners identify ways to enhance energy efficiency, save money, and improve comfort for residents.

The Bigger Picture: Championing Small Multifamily Properties

Investing in the sustainability and support of small multifamily properties is not just a feel-good initiative—it’s an economic necessity. These properties help stabilize neighborhoods and provide housing options for a wide range of incomes. As the affordable housing crisis continues to escalate, bolstering support for small multifamily owners and managers can make a significant impact on the rental housing market.

While the trend toward larger multifamily developments persists, the importance of smaller multifamily properties cannot be overstated. These buildings and their owners are essential to providing affordable housing and sustaining the multifamily industry’s overall health. Conservice is dedicated to helping small multifamily property owners overcome their unique challenges, ensuring their success and the continued availability of affordable rental homes.

If you’re a small multifamily property owner looking to streamline your utility management and reduce costs, speak with a Utility Expert today.