Choosing to buy a multifamily property can offer an alternative path to home ownership if you're ready to leave renting behind. But what is a multifamily home, and is it right for you?
What is the difference between single and multifamily homes?
A single-family home is a free-standing structure containing one kitchen, one or more bathrooms, one or more bedrooms and a main living area. Multifamily homes have more than one unit, each with its own unique address, a kitchen, bathroom, living room, one or more bedrooms and a separate entrance.
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What is an example of a multifamily home?
When searching for housing, you can find various types of multifamily housing:
Duplexes have a common wall separating two units, each with its own entrance and a floor plan that's like a single-family property.
A townhome shares walls with neighbors on either side — often in a long row of homes.
Triplexes consist of three units instead of two. The middle unit shares walls with the units on both ends.
A quadplex has four units with one or more shared walls. Units may be arranged in a row side-by-side or leveled, with two units on the bottom and two on top.
Apartments have multiple units and may share walls on each side, above and below. Each has its own kitchen, bathroom and living space, and often shares multiple areas (laundry room, gym, etc.).
Purchasing a multifamily home gives you the opportunity to live in one unit while renting the others out to generate regular, passive income.
What are the benefits or drawbacks of multifamily homes?
Whether this type of housing makes sense for you can depend on your goals and what you can afford.
Benefits of investing in a multifamily home
Purchasing a multifamily home gives you the opportunity to live in one unit while renting the others out to generate regular, passive income. Depending on how much you're able to charge, becoming a landlord could greatly reduce your monthly payments on the property. The amount you are able to charge may fluctuate with rent prices and demand in your area.
Investing in real estate may help you diversify your assets to offset market volatility, earning rental income through changing market environments. Multifamily homes can also generate tax benefits. You need to report rental income on your tax return, but you can deduct expenses like depreciation, maintenance and property management fees if you outsource the work to a third-party company.
You might consider a multifamily property if you are looking for investment properties or want to share a property with relatives or friends.
The drawbacks of investing in a multifamily home
Cost is one of the biggest disadvantages of multifamily housing. A more expensive property can mean a higher mortgage payment, and if you can't find tenants, then you're on the hook for the entire amount.
You'll need to have more cash on-hand to handle maintenance or unexpected costs. If your HVAC system dies, it could cost you $5,000 or more — and you’ll be obligated as a landlord to fix it quickly.
You may want to look for a single-family home if you would like more space between yourself and your neighbors and aren't sure about committing to maintenance.
How do you start investing in multifamily housing?
First, decide what type of property you're most interested in and whether you want to live in one of the units. Your answer can help determine how much rental income you'll be able to generate.
Next, think about how much you can afford to spend and the size of loan you need. Compare lenders to get an idea of how multifamily loans work and their qualifications for approval.
Lastly, start looking for suitable properties. An experienced real estate agent can help you get a sense of the rental market, what properties are selling for and how much rent you could charge.
All in the multifamily
Home is where the heart is. By purchasing a multifamily property, you’ll have the opportunity to create a home not just for you, but for your tenants, too. And maybe earn some extra income along the way.
