From duplexes, which have two dwellings within a single building, to homes or small apartment buildings with up to four units, a multi-family home is a single building that is set up to accommodate more than one family living separately. Buildings with more than four units are considered commercial properties.
While you can rent out some or all of a single-family home, multi-family homes have some characteristics that you won’t find in a traditional house. For example, each unit in a multi-family home has a different address, their own kitchens and bathrooms, and most likely their own entrances.
When purchasing a multi-family home, there are certain things you should consider that you wouldn't have to with a single-family home such as the needs of your tenants, the kinds of income the property will produce, as well as what your expenses will be. Some multi-family homes started out as large single-family homes that an owner or developer decided to divide into more than one property. Those living in multi-family homes may have less privacy than those living in single-family homes because of shared walls. If you're purchasing a multi-family home, you may be able to use the projected rental income from the property to help you qualify for a mortgage and you may also qualify for a higher loan amount.
- Extra Income: The income the property earns from renters can help offset the cost of your mortgage and other housing expenses, providing you with an income stream.
- Repairs: If you live in or close to your rental property, it’s less likely that you’ll miss major issues and you’ll be able to respond faster when problems arise.
- Write-Offs: You can write off much of your home maintenance as a business expense and pro-rate part of your mortgage interest payments.
- Multi-Generational: Living in a multi-family home could be an ideal option for multi-generational families who want to be close but retain their privacy (or helps you keep the option open in the future).
- Income-Producing Investment: If you ultimately move out of the property and into your own home, you can still keep it as an income-producing investment, earning even more once you start renting out your own former unit.
- Upfront Costs: Purchasing a multi-family home may cost more upfront than it would to buy a single-family home.
- Responsibilities of a Landlord: Living in the immediate vicinity of your tenants means you may get knocks on your door at any time for questions about maintenance or repairs. You’ll also need to make sure that you’re comfortable negotiating lease terms and screening your tenants. Furthermore, you need to be able to deal with tenants in a business-like way when the rent is overdue, there are issues with noise or there’s damage to the property, to name but a few of the problems that landlords face.
- Potential Financial Risks: If your units go vacant or a tenant is late with the rent, you’re still responsible for paying your mortgage. You also have to cover the cost of (quickly) repairing problems like a leaky roof or clogged toilet.
- Emergency Fund Required: The more units you have, the less impact an individual unit will have on your overall cash flow, but landlords should have an emergency fund set aside to cover unexpected repairs as well as rent on vacant units.
- Harder to Sell with Tenants: It can be more complicated to sell a multi-family property that has tenants since you’ll need to coordinate showings and appraisals — and keep the tenants aware of the process.