Multi Family Properties: What Is A Multi Family Home And How To Buy One?

If you’re exploring different types of homes or considering real estate investment options, a multi family home could be a great option. In this article, we will explain what a multi family home is, weigh its pros and cons, discuss financing options, and provide additional information to help you make an informed decision.

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What is a multi family home?

A multi family home is a type of residential building that contains several individual housing units. Each of these units is designed to accommodate separate families or households, allowing them to live independently. Types of multi family homes include duplexes, condos, townhomes, and semi-detached homes.

What is a single-family vs multi family home?

Before you purchase your new home, it’s important to know the difference between single-family and multi family homes.

A single-family home is a house made for one family with its own entrance, yard, and utilities. They are generally private and more spacious as there are no shared walls. In contrast, a multi family home is a building with more than one housing unit, each meant for one family. In this type of home, you will most likely share walls and community amenities with other residents.

When deciding between these options, think about your specific needs and lifestyle. A single-family home could offer more privacy and space, whereas a multi family home could be a good choice if you prefer a more social living environment.

What is considered a multi family home?

Multi family homes come in various shapes and sizes, with each having their unique layout and living spaces. Here are the most common types of multi family homes along with a brief overview of their main features:

Duplex/Triplex

Duplex/Triplex buildings consist of two or three separate units, each with its entrance and kitchen, and sometimes private outdoor spaces, such as a patio.

Condos

Condos are individual units that you can own within a larger building or complex. Common areas like hallways, landscaping, and amenities like a pool or gym are shared with other condo owners.

Townhomes

Townhomes are attached residences that share walls with neighboring units on either side. They usually have multiple floors, with living spaces spread out vertically. Townhomes often have a small yard or patio at the back.

Semi Detached Homes

Semi detached homes are single-family dwellings that share a wall with one neighboring unit. These homes typically mirror each other, with each unit having its entrance and yard.

Multi Family Home Loan Requirements

The multi family home loan requirements will vary based on if you intend to use the multi family home as your primary residence or as an investment property.

Primary Residence

If you are looking to purchase a multi family home (2-4 units) to use as your primary residence, both FHA and Conventional loans can be used.

FHA Loans

FHA Loans are regulated by the Department of Housing and Urban Development (HUD) and are designed to provide flexible guidelines for borrowers with limited down-payment funds and a less-than-perfect credit score. To be eligible, you must occupy the property for at least one year. Additionally, the loan comes with mortgage insurance (MIP) until you reach a certain level of equity stake.

Conventional Loans:

Conventional loans require a higher down payment (15%-25% depending on units) and may have stricter credit score requirements than FHA loans. Nonetheless, they don’t require private mortgage insurance (PMI) once you reach 20% equity.

Investment Property

For multi family homes being used for investment properties, DSCR or Conventional Loan programs may be ideal.

DSCR (Debt Service Coverage Ratio) Loans

These loans focus on rental income to qualify for the loan. DSCR investor loans use the property’s cash flow to determine borrowing capacity. Lenders will typically require a minimum DSCR of 1.25 or higher, and they’ll also consider other factors such as the property’s location, type, and condition.

What To Know Before Buying A Multi Family Home

If you’re planning to buy a multi family home, there are a few things to keep in mind before deciding. To begin, evaluate your financial readiness, which involves reviewing your savings, credit score, and financing options. You should also consider the location of the property and its potential to generate rental income.

Moreover, it’s important to assess the property features such as the number of units, and its condition. You can conduct due diligence by scheduling a home inspection, reviewing financial records, and verifying zoning regulations. Lastly, you will need to decide whether you want to manage the property yourself or hire a property management company to take care of it.

Pros and Cons of Buying Multi Family Homes

If you are considering a multi family home investment, there are some pros and cons to consider before deciding if this is the right option for you.

Pros of Multi Family Housing

Here are a few of the advantages to consider when buying a multi family home.

• Rental Income: Collecting rent for the units you will not occupy could go a long way towards subsidizing, or in some cases, could help cover the monthly mortgage payment on the property.
• Tax Benefits: With a multi family home, you could qualify for tax deductions on mortgage interest, property taxes, maintenance costs, and depreciation.
• Multi-Generational Living: For families looking to live close to each other while maintaining their own space and independence, multi family homes could be an ideal option.
• Investment Flexibility: Initially, residing in one unit and later renting it out could allow for an easier transition to real estate investing. This could also help mitigate some of the risks involved.

Cons of Multi Family Housing

Investing in multi family homes has its perks, but it also comes with some drawbacks worth considering.

• Higher Upfront Costs: A multi family home could have higher upfront costs than single-family homes due to larger down payments and stricter loan qualifications.
• Management Responsibilities: Managing a rental property can be time-consuming. You could hire a property manager to help, but keep in mind it will adds extra costs.
• Financial Risks: A vacant unit, or a tenant failing to pay rent could cause financial strain, as you will still be responsible for the monthly mortgage payments and any property expenses.
• Resale Value: Reselling a multi family home could be more challenging compared to a single-family home. Especially in a slower market or with tenants living in units.

Who should consider investing in multi family homes?

If you are a real estate investor and comfortable being a landlord, multi family homes could be a great option for you. Additionally, multi family homes are ideal for multi-generational families who value living together while still having their own space. These homes typically have between two and four units, providing the benefits of communal living while ensuring individual privacy.

How can I find multi family homes for sale near me?

If you’re searching for a multi family home for sale, it’s recommended to work with a real estate agent who can help you find available properties. You could also browse online listing websites where you can filter search results based on the type of home you’re interested in.

How to buy a multi family house?

If you are considering a multi family home purchase, a general overview of the steps include:

1. Get pre-approved: Find a Loan Officer who will help you start your application to get pre-approved for a loan. This will give you an idea of your budget, and will show sellers that you are serious about buying.
2. Find a Real Estate Agent: It’s important to work with a knowledgeable real estate agent who has experience with multi family properties. They can help you navigate the market and find options that meet your needs.
3. Search for Properties: Consider the type of multi family property you want to purchase. For instance, are you looking to buy a condo, townhouse, duplex, etc.? Work with your real estate agent to find listings that suit your needs in your area.
4. Negotiate Terms: Once you’ve found a property you want to make an offer on, negotiate with the seller to agree on terms that align with your budget and investment goals.
5. Close the Deal: After the offer has been accepted, sign the necessary documents, transfer funds, and complete any remaining steps outlined by your real estate agent and lender.
6. Manage the Property: After purchasing the multi family home, make sure to have an effective plan in place to properly maintain the property and attract tenants.

FAQ’s About Multi Family Real Estate Investing

Is a duplex a multi family home?

A duplex is a multi family home as it consists of two separate housing units within a single building. These units can either be located side by side or stacked on top of each other. Each unit usually has its own entrance, kitchen, and bathroom, providing separate families or tenants with their own living space.

Is a town house a multi family home?

It is important to consider the specific situation when determining whether a townhouse is considered a multi family home. If you own the entire structure, including the land it sits on, a townhouse would not be considered a multi family home. However, if the townhouse has been converted into multiple rental units, then it would be classified as a multi family home.

What is the minimum down payment for multi family property?

The minimum down payment for a multi family property varies depending on the type of loan you choose. For instance, if you qualify for FHA financing, you may be eligible for a down payment as low as 3.5%. Conversely, conventional loans typically require a minimum down payment of 5% for primary residences. To determine the best down payment option for your situation, utilize our Mortgage Calculator and speak with a Loan Officer.

Can I buy a multi family home with a VA loan?

If you meet the eligibility requirements, a VA loan can be used to finance a multi family home. Keep in mind that the property must be owner-occupied, which means you must reside in one of the units.

Can you buy a multi family home with an FHA loan?

You can use an FHA loan to buy a multi-family home with up to four units. The Federal Housing Administration (FHA) defines a “single-family residence” as a dwelling with 1-4 units. However, you must intend to live in one of the units as your primary residence for at least one year.