@Andrew Kniffin I made that mistake early on, too. You need a commercial loan for a 5+ unit apartment building but its still residential for depreciation.
I think you're thinking of this exemption (from Fair Housing FAQ):
The Fair Housing Act covers most housing. In some circumstances, the Act exempts owner-occupied buildings with no more than four units, single-family housing sold or rented without the use of a broker, and housing operated by organizations and private clubs that limit occupancy to members.
I would recommend having a discussion with both your accountant and your landlord/tenant attorney and having them brief you on the issues for this larger building. But for the most part the residential vs. commercial distinction is related to lending. That's a consequence of Fannie Mae/Freddie Mac guidelines that only allow them to buy 1-4 unit properties.
Building codes are often stricter for larger buildings. But those may kick in at three units, not five. For example, the International Residential Code applies only to SFRs and duplexes. Larger building are covered by the International Building Code.
@Andrew Kniffin I made that mistake early on, too. You need a commercial loan for a 5+ unit apartment building but its still residential for depreciation.
I think you're thinking of this exemption (from Fair Housing FAQ):
The Fair Housing Act covers most housing. In some circumstances, the Act exempts owner-occupied buildings with no more than four units, single-family housing sold or rented without the use of a broker, and housing operated by organizations and private clubs that limit occupancy to members.
I would recommend having a discussion with both your accountant and your landlord/tenant attorney and having them brief you on the issues for this larger building. But for the most part the residential vs. commercial distinction is related to lending. That's a consequence of Fannie Mae/Freddie Mac guidelines that only allow them to buy 1-4 unit properties.
Building codes are often stricter for larger buildings. But those may kick in at three units, not five. For example, the International Residential Code applies only to SFRs and duplexes. Larger building are covered by the International Building Code.
@Andrew Kniffin and @Jon Holdman : Thank you so much for your input on my question about my 6 unit. All of your comments give me a good starting point for my research and I will definitely speak with both my attorney and CPA regarding the unique implications these larger multi-families present. I am always a learner, so please feel free to add as thoughts come to mind.
Happy to help, Stephanie. I learned something new, too: @Jon Holdman mentioned that depreciation on a multifamily is the same timetable as residential: 27.5 years. It's only the type of financing you need that changes.
That definitely makes MF more attractive, since it provides greater "paper expenses" to reduce taxable income. We're always learning!