What Is a Multi-Family Home? (The Ultimate Guide)

Are you thinking about buying a multi-family home? Whether you’re already a landlord and you’re considering upgrading to a bigger property or you’re just curious about what all the fuss is about, this guide will tell you everything you need to know about multi-family properties.

We’ll answer what is a multi-family home, how it differs from a single-family home, the pros and cons of owning one, and how to find the perfect multi-family property for your needs. So, whether you’re a first-time buyer or a seasoned investor, this guide will help you make an informed decision about whether a multi-family home is right for you.

What Is a Multi-Family Home?

A multi-family home is a property that contains two or more units, like apartments, condos, townhouses, or even single-family homes. The property is owned by a person residing in one of the units—this is known as “owner-occupied real estate.” Due to their potential for high returns, multi-family homes are a popular investment choice, although they come with some unique challenges and considerations that we’ll discuss in more detail later on.

What Is the Difference Between a Single Family Home and a Multi-Family Home?

Although the biggest difference between a multi and single-family home is the number of units, there are some other key differences to be aware of as well.

• Size

For one thing, multi-family real estate is usually much larger than single-family homes, meaning they require more upkeep and maintenance, which can be a challenge for busy landlords.

• Rules and Regulations

Another key difference is that multi-family accommodations typically have more rules and regulations than single-family homes because there are multiple families living in close proximity to each other, so it’s important to have clear boundaries and expectations in place.

• Higher Cost 

Finally, a multi-family residence usually appreciates at a higher rate than single-family home because there’s a larger demand for rental units, so investors are willing to pay more for multi-family properties.

Types of Multi-Family Homes

There are several different types of multi-family housing, each with its own set of benefits and drawbacks. Here’s a quick overview of the most common types of multi-family properties:

• Duplex

A duplex is a two-unit property, typically with one unit on each of the floors. Duplexes are a popular choice for first-time landlords because they offer a lower price point and less maintenance than larger multi-family real estate. The tenants will share one entryway, but each unit will have its own entrance.

• Triplex

A triplex is a three-unit property, with each unit having its own entrance, kitchen, living room, and bathroom, but sharing common areas such as laundry facilities and outdoor space.  Triplexes offer the potential for higher returns than duplexes, but they also come with more maintenance and upkeep. Depending on where they’re located, one or two shared walls exist between each unit.

• Quadplex

A quadruplex apartment is a four-unit apartment with four private rooms that can accommodate a separate person or family. A fourplex may generate the same rental income as four separate rentals while offering tax advantages and enabling the owner to finance their mortgage.

• Townhomes

Townhomes are a type of multi-family home typically made up of two to four units. They offer the benefit of being lower maintenance than other types of communal family homes, but they also tend to appreciate at a slower rate.

• Condominium

Often called a condo, a condominium is a privately owned single-family home within an apartment complex. Common areas such as pools, gyms, garages and laundry rooms are shared by condo owners, but they’re solely responsible for their own interior living space.

Advantages of Multi-Family Houses

If you’re wondering what are multi-family homes advantages, there are a few, both for investors and families. Here are just a few of the benefits of owning a multi-family property:

Rental Income

One of the biggest advantages is that you can generate rental income from your tenants, which can help offset some of the ownership costs and make it more affordable for you in the long run. Having an extra rental income is one of the ways for saving for a new house. Appreciation is at a higher rate for multi-family homes, meaning owners can see a good return on their investment.

Paying off Mortgage

If you live in one unit and rent out the others, you can offset your mortgage payments and cut the mortgage expense considerably more than you could on your own. Make sure the investment is well worth it by looking at what similar-sized places in the area are renting for.

Tax Benefits

The IRS offers several tax breaks for landlords, including the ability to deduct mortgage interest, property taxes, and repair and maintenance costs of a multi-family residence. The costs of repairs and upkeep may be deducted when the property is rented out, but not when it is lived in as your primary residence. Although these benefits can help you save money on taxes, you should consult an accountant before submitting claims for expenses, as well as research home improvements loan offers if you’re planning to renovate.

More Cash Flow

You might expect that having numerous families in one home would result in a greater cash flow. As each additional family increases your income and profitability, you’ll be able to make more money when compared to a single-family property.

Building a Community

So, what is multi-family real estate also beneficial for? Another plus is that you can get to know your tenants and build a community within your home, getting to meet new people and make friends in your neighborhood.

Key Takeaways

Disadvantages of Multi-Family Houses

Unfortunately, multi-family housing also has a few drawbacks. Here are just a few of the potential downsides of owning one:

Higher Vacancy Rates

The vacancy rate for multi-family residences is often higher than for single-family homes, as there are more units to fill. Also, if one tenant defaults on rent or moves out, it can put a strain on your finances, so it’s important to have a backup plan in place in case this happens.

More Maintenance

Although it can be beneficial to invest in multi-family homes, meaning they have the potential to generate income through leasing, they’re not appropriate for everyone. Maintaining a large multi-unit property takes a lot of time, which might impact your lifestyle—if you intend on renting out the units, you’ll need to screen tenants, execute leases, deal with property damage, etc.

Shared Amenities

While shared amenities can be a perk for tenants, they can also be a downside. Sharing amenities with neighbors can be a problem if there are disagreements about noise levels, cleanliness, or other disputes, which can become an issue you have to deal with as a landlord.  Also, amenities can be expensive to maintain.

Less Privacy

Another downside is that you’ll likely have less privacy living in a multi-family house, meaning you’ll have to share common areas and be aware of what your tenants are doing at all times, in addition to being available for your tenants to contact you for any problem at any given time.

Conclusion

If you’re looking for more space, privacy, and the potential for higher returns, a multi-family home might be a good option for you. However, you should be aware of the risks involved, such as higher vacancy rates and more maintenance. Ultimately, the decision of whether to buy a multi-family property depends on your individual needs and preferences—and before you buy it, make sure you check with the best home-buying sites.