What is a multifamily property?
A multifamily property is a single building or complex holding more than one rental unit, from a duplex up to a large apartment community. The line that matters most in practice falls at five units, because that is where the financing, the insurance and often the rules change.
In a little more detail
Two to four units is still residential to most lenders. You can usually buy one with a conventional or an FHA loan, the appraisal leans on comparable sales, and if you live in one of the units yourself you can often do it with a small down payment.
Five units and above is commercial. The loan is underwritten on the property's income rather than on your salary, the appraisal leans on net operating income and cap rate, the term is usually shorter, and the down payment is larger.
The day-to-day work is different too. One roof, one boiler and shared common areas mean a single failure is a whole-building problem. In exchange, a vacancy hurts far less than it does in a single family rental, because the other units carry on paying while you turn one over.
Check the metering early. Separately metered units put the heat, the water and the power on each tenant. A single meter puts all of it on you, which changes both the rent you need to charge and the way you write the lease.
- A fourplex renting at $1,200 a unit brings in $4,800 a month. When one tenant leaves you lose a quarter of the income and the other three keep paying.
- A single family rental at $2,400 loses all of its income the day its tenant hands in notice, and it stays at zero until you fill it.
Things to watch
- Five units moves you into commercial financing. Plan for it before you make an offer.
- Find out whether the units are separately metered before you buy.
- One roof and one boiler serve everyone, so budget reserves for the building, not per unit.
Create the property once and add its units, each with its own rent, lease and tenant. The Rent Roll report then groups by property, so you can read one unit or the whole building.
See how DigitalTenant handles a building with many units, from the rent roll to the leases.
This is a plain-English explanation, not legal advice. Rules vary by state and city, so check your local law or talk to an attorney before you act on it.
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