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What Is a Multi Family Home?

October 30, 2018

If you are new to real estate investing, you might assume that the answer to the question “What is a multi family home?” is trivial – namely a structure containing two or more homes.  Sure, that’s a good starting point, but it’s also a bit reductive.  Read on to learn about the various types of multi family homes available for investment.  And you’ll learn how owning a multifamily home can be a lucrative undertaking.

What Is a Multi Family Home?

A multi family home, also known as a multi-dwelling unit, is a structure or complex of structures that divides its internal space among several residential housing units or apartments.  Each has its own bathroom and kitchen.  Clustering Multi family homes in communities and/or sharing space with commercial properties is common.  Each type of multifamily home can be a successful investment if you use the right developer and lender.

Types of Multifamily Housing

Here is a rundown of the different types of multifamily real estate:

Residential

  • Duplex, triplex and quadplex:  These are multi family homes containing two, three or four housing units, respectively.  They share the underlying land, a house lot.  And it may share other commons features as well.  These may include front and back doors, a basement, a front entrance, stairs, and perhaps a utility room with washer and dryer.  Conversely, multiplexes might share little more than the house lot.  This would be the case when each home occupies a full story of the building, has its own front door, and is accessed via an external stairway.  Multiplex units are typically rentals residing in a building with a single owner.  The owner might be a private investor, a partnership, a corporation or real estate investment fund/trust.
  • Semi-detached homes and townhouses:  These units have their own land and ground-floor entrances.  But they share one or more external walls and perhaps a common parking area or back yard.  Typically, each home as its own owner.  Although, rental townhouse complexes might belong to a single developer or real estate company.  The individual units are typically very similar in shape, size, layout, appearance and amenities.  Painting townhouses in different colors within rows of units is frequently done.  And, they might have semi-unique external decoration.

Commercial

  • Apartment building:  This is a building containing multiple apartment units, usually of varying design and size characterized by the number of bedrooms and bathrooms.  Although the typical apartment building is made up of rental units, condominiums are apartment buildings in which each unit is owned separately, and the owner either resides in it or leases the space to a tenant.  Typically, apartment buildings are multi-story structures, frequently with multiple apartments per floor, each sharing common hallways and elevators.  A corporation owns a co-op apartment building in which the tenants are the shareholders.  Luxury apartment buildings can have all sorts of premium amenities, including doormen, electronic security, health club, swimming pool, package room, on-site rental agent, business center, dry cleaner, meeting room and even a café.
  • Clustering multiple apartments is common in an apartment building community that shares common grounds and features like a community clubhouse, laundry facility, gym/swimming pool, arts center and so forth.
  • Mixed Use Building: This is a building that shares residential and commercial space (i.e., offices, businesses and/or retail stores).  A common configuration has commercial space occupying the ground floor, perhaps one or more floors directly above, and then apartments or condominium units in the remainder of the building.  In many urban settings, the ground floor is occupied by a retail store or restaurant.

It should be evident that investors of every size can find multifamily real estate worthy of investment or development.  Assets America® funds multifamily housing projects starting at $5 million with no upper limit; of course, these multifamily buildings are a minimum of 5+ units which qualifies them to be “commercial” properties within the financing world.

Now that we’ve addressed the question of what is a multi family home, let’s explore the reasons for owning multifamily real estate.

Investing in Multifamily Housing

Real estate investing offers its own unique risk/reward profile that suits many investors, whether individual, fund-based, or corporate.  The three types of multifamily home investments are development, redevelopment and rehabilitation.

Development of Multifamily Housing

Construction of new multi family homes and apartment buildings on unoccupied land is the most ambitious way to invest in this market.  While there will always be small projects like the construction of a new duplex on speculation, the serious money lies in large, ambitious projects.  These projects include planned communities with multifamily homes, apartment complexes, mixed-use skyscrapers, and other sizeable projects.  Investors can get involved before construction begins.  And they can participate in the eventual sale of the property.  Furthermore, they can receive rental income that the property generates once they complete construction and fully stabilize/lease the property.

The U.S. tax code favors real estate investment, and a properly structured investment vehicles receive considerable tax breaks from the federal government.  States and local municipalities are frequently interested in subsidizing multifamily housing projects that include an affordable housing component. Subsidies come in many varieties, including direct investments, loan guarantees, easements, zoning relief, tax breaks and development of supporting infrastructure.

Redevelopment of Multifamily Housing

This category describes construction aimed at significantly changing or expanding an existing property.  A well-known example in many urban settings is the redevelopment of a warehouse, armory, or other commercial building into apartment lofts.  The Soho and Tribeca areas of Manhattan are prime examples of this type of redevelopment.  In redevelopment, the existing structure undergoes considerable modification.  This can leave little of the original structure intact, a strategy that can be useful when local zoning codes prohibit new construction.  Developers sometimes completely demolish (tear down) existing buildings as part of a redevelopment project.  In many situations, redevelopment is more complex and slower than new, greenfield construction.  But the rewards can be much greater too.

Rehabilitation of Multifamily Housing

Rehabbing an existing multifamily housing structure or apartment building is less extensive than redevelopment.  It can range from a simple sprucing up to structural repair and replacement of electrical, plumbing and other internal systems. Rehabbers often undertake smaller fix-and-flip projects.  Whereas, large rehabs can result in a permanent increase in rental rates and occupancy levels.  Cities are full of rehabbed apartment buildings that were once run down but now rent at premium levels.

Now you understand what is a multi family home and how you can profit from multifamily real estate investing.  You owe it to yourself to contact Assets America® today for detailed information about loans starting at $5 million!