What Is a Multifamily Home and How Do You Buy One?

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Written By Justin McGill

DealBloom aims to share the latest tips and strategies to help realtors, brokers, loan officers, and investors navigate the world of real estate.

If you’re in the market for property investments, you might be wondering what is a multifamily home and how it differs from a single-family home. A multifamily home is simply any property that consists of two or more units. This can include duplexes, triplexes, quadplexes, and larger apartment buildings.

Multifamily homes are often seen as a great investment opportunity because they offer the potential for higher rental income than single-family homes. And since there are multiple units involved, if one unit becomes vacant there’s still the possibility to generate income from the other units.

However, it’s important to note that owning and managing a multifamily property comes with its own set of challenges such as coordinating repairs and dealing with tenant issues. It’s not for everyone. But if you’re up for the challenge and think a multifamily property would be right for you, then definitely consider this option when searching for your next investment.

What Is a Multifamily Home?

How do we define what is a multifamily home? A multifamily home is a dwelling that is made up of more than one residence. They can be attached like duplexes and townhouses, or detached like multiple single-family homes.

Multifamily homes are a good option for people who want to live in close proximity to others, like in an urban environment, but don’t want to live in an apartment building.

In a multi-family dwelling setup, one building houses multiple families and has separate units for each.

The property could be owned in its entirety by a single person, by a corporation, or by multiple owners, as is the case for condos. The most common type of multifamily housing is an apartment building.

Each unit in a multifamily dwelling has its own address, entrance, kitchen, bathroom, and utility meter.

A multifamily home is a residential property where each family lives independently. It is not a house that has an extra bedroom in the basement for your college student.

Residential multifamily properties have a maximum of three units. If the property has four or more, then it’s considered a commercial building.

If the owner lives in one of the units, it is called an owner-occupied property.

If you’re looking to get started in real estate investing, multifamily homes can be a great option. Not only can they help build your wealth, but they can also provide passive income.

Of course, there are some things you should know before getting started, like the pros and cons and the best strategies for purchasing a multifamily home.

Relax. Make yourself a nice cup of tea or grab a cold beer.

In this guide, we’ll cover everything you need to know about the different types of multi-family properties.

Let’s get to it.

How to Find a Multi-Family Home

To find a multi-family home, you can start your search on a real estate website like Zillow or Redfin. When you’re searching for properties, be sure to filter the results so that you only see multi-family homes. This will help you narrow down your search and find the perfect property for your needs.

If you’re looking for a multi-family home, working with a real estate agent who specializes in that type of property can help you find the best investment opportunities in your area. They may even be aware of some listings that haven’t been advertised online yet.

As always, it’s important to do your research on current prices and what you can expect to pay in your market.

What to Look For in a Multifamily Home

When searching for a multi-family property, there are several things that you will want to keep in mind.

First, it may come as no surprise, but — location, location, location.

A highly desirable location is more attractive to renters.

That means that you can spend less time dealing with vacancies and you’ll be able to sell your property for more money in the future.

When considering purchasing a multifamily home, it’s important to understand the strength of the local market. Factors like solid job growth and a diverse employment base can lead to increased demand for rentals, which can in turn help keep vacancy rates low and property values high.

So if you’re thinking about investing in a multifamily property, be sure to do your research on the area first!

Keep an eye on new construction projects, and pay attention to how many apartment complexes, rental homes, or condos are being built.

Finally, consider consulting the U.S. Census Bureau for statistics on the number of renters and vacant homes in your area.

When researching multifamily homes, it is important to take note of the monthly rental rates. These rates can change significantly based on location, square footage, or amenities. By understanding these factors, you can better estimate your potential annual rental income.

The number of units is another important factor to consider. More units usually mean more rental income, but it also means more tenants to manage and units to maintain. Weighing the pros and cons of each option will help you make the best decision for your situation.

Knowing what the motivation of the seller is for unloading a multi-family property can help you understand if there might be something wrong with it.

Is the property well-maintained? When touring the building, make sure to pay attention to any smells, stains, or holes in the walls.

Who Should Buy Multifamily Properties?

If you’re looking for a property that could offer more than one dwelling unit, you might want to consider a multifamily home. These homes could be a good fit for first-time homebuyers or investors who want to own a multi-unit property.

There are several reasons why someone might choose a multifamily dwelling, such as wanting to live in one of the units and rent out the others, or wanting to generate passive rental income. If you meet the basic qualification requirements for a multifamily mortgage loan, this could be a great option for you.

If you’re looking to live alone, a single-family home might be a better option. However, if you’re looking to rent with roommates, a multi-family unit may be better.

You’ll also need to factor in how much time you’re willing to spend on maintenance. If you don’t meet the credit, income, and assets requirements for a mortgage loan, a multi-family house may not be for you.

Pros and Cons of Multifamily Homes

Not everyone is cut out to buy a multifamily home. Whether or not it’s right for you depends on your goals and what you can afford to pay.

Buying a multifamily property could be a great way for you to start building equity in a home of your own. Not only could you live there, but you could rent out the other units for a continuous passive income.

This income you receive from renting out your property can help you cover some or all your home ownership expenses (i.e. mortgage, insurance, taxes, maintenance, and repairs). Depending on your market, you may be able to earn enough to pay very little to nothing at all for this property.

Real estate investing can be a great way to offset volatility in other markets and protect against the effects of increasing prices.

If you already own investments such as stock, mutual funds, or bonds, adding real estate investments to your investment portfolio can help diversify your risk.

If the demand for rental property increases, landlords can charge more per unit.

Tax benefits can also be generated for multifamily properties.

While you do have to pay taxes on your rental property, you can claim deductions for things such as maintenance, depreciation, and management fees if you hire an outside firm to take care of them.

One of the downsides of investing in a multi-family property is the higher cost. A pricier home means a bigger mortgage.

If you don’t rent out the units, then you’ll have to pay the full amount.

Larger properties typically mean more upkeep, which can be costly. Make sure you have enough cash set aside to cover any unforeseen issues.

If your air conditioner or furnace breaks, you could be looking at a bill of $5,000 or more to replace it.

In terms of getting approved for a mortgage loan, you may have to meet stricter requirements, like previous experience with property investing.

Additionally, your lender might have a lower limit on your loan-to-value ratio (LTV). This is the amount you’re borrowing compared to the value of the property. You can calculate this by dividing your loan amount by the appraised value of the home.

In general, you may end up paying a higher interest rate on a multifamily home than you would for a single-family dwelling.

Single-Family Homes vs. Multifamily Homes

A single-family home is just what it sounds like: a house that only has one family.

A single-family home usually has one main living space, at least one bathroom, and a kitchen.

Multifamily homes have more than one unit (which may share walls with another) that accommodate several families or individuals. Each has its own separate kitchen, bedroom, and bathrooms, as well as a living area, and its own private entrances.

Sometimes, when buying a home in a highly competitive housing market, you may have to think outside of the box. Choosing to buy a multi-family home instead of a house can be a good way to transition from being a tenant to a homeowner.

But what is a multifamily home, and should you consider it?

A duplex is a type of home that has two units, two entrances, and a wall in between.

Porches and backyards can be sectioned off so that each unit has its own outdoor space. This allows for privacy and gives each tenant their own space to enjoy.

A triplex is a type of home that has three units. The middle unit shares walls with the units on both sides.

A triplex offers shared outdoor space like a front porch or backyard.

A quadplex is a type of multi-unit building with 4 separate housing units. These buildings can have a variety of different configurations, including how the four units are organized, and the layout of each unit.

Apartments can be stacked in rows, or levels, with two units at the bottom and two units on top. They have at least one wall in common, and they may share a common outdoor area.

Each unit has its own kitchen, bathroom, and living space. Tenants shares multiple common areas such as the laundry room or gym.

Conclusion

What is a multifamily home? For a property to qualify as a multi-unit dwelling, it must contain no more than four separate living units and the owner must live in one of them. If an apartment complex has five or more apartments, it’s considered a commercial building, not a multi-family dwelling.

If you’re considering purchasing a multifamily home, then it’s important to weigh the pros and cons before making your decision. On the plus side, multifamily homes offer the potential for higher rental income than single-family homes. And since there are multiple units involved, if one unit becomes vacant there’s still the possibility to generate income from the other units.

However, owning and managing a multifamily property comes with its own set of challenges. Be sure to do your research and carefully consider all factors before deciding whether or not a multifamily home is right for you!

Justin McGill