What You Need to Know Before Investing in a Multi-Family Property

Investment properties come in a few different forms: single-family houses, apartment buildings, duplexes, office complexes, and so on. The ones we talk about the most are single-family, because that’s the bread and butter of our business. However, we also deal in a few multi-family units, and these have proven very successful for many of the investors we work with.

In this post, we’re going to cover some of the things you need to be aware of that make multi-family properties a bit different from single-family. And just to be clear, when we refer to multi-family here, we’re talking about duplexes, triplexes, and fourplexes - not 100-unit apartment buildings, because that’s a whole different ballgame entirely.

1. You won’t have as many options. There are far more single-family properties on the market than there are multi-family, so naturally, you will have fewer choices on what you can buy. And while single-family homes comes in a multitude of styles (ranch, two-storey, bungalow, etc.), multi-family properties typically aren’t as varied.
2. There are location limitations. Not every neighborhood has duplexes, triplexes, or fourplexes. You’ll notice that these types of multi-family units are few and far between in most suburban markets, for instance, so if this is your target area, you may want to reconsider.
3. It’s going to cost more than a single-family property. You’re getting two, three, four or more homes under one roof, so be prepared to fork over more dough.
4. Securing a mortgage may be a bit trickier. The more units there are, the more complicated financing can become. Of course the higher cost of the property will factor in, but the fact that multiple tenants will be living under one roof may also raise some red flags with lenders.
5. Vacancies won’t be AS big of a deal. While any vacancy is a bad thing, you won’t suffer as much if a unit goes vacant in a multi-family property. You’ll still have rent coming in from the occupied units, which will help offset some of the lost revenue from the unoccupied space. Plus, in most markets, there’s a larger pool of tenants for multi-family properties, meaning your empty unit will likely become occupied sooner rather than later.
6. Maintenance and repairs are multiplied. Multi-family usually means more in terms of maintenance. Granted, performing some of these jobs can be a “two birds, one stone” scenario since all your units are in one, convenient location, but you’ll also dealing with multiples of everything, which means more work - and more expense.
7. They can be absolute cash cows - or not. Here’s the thing with multi-family properties: you’ve got two, three, or four sources of income. You’ve only got one with a single-family. This can equate to massive cash flow with a multi-family property, provided the units are occupied by paying tenants, of course. Keep in mind, though, that these properties typically have higher turnovers, meaning you may see an ever-revolving flow of tenants. Tenants in this type of housing are also usually considered lower-quality, so your chances of having to deal with non-paying renters, evictions, and damage to property go up as a result.

Clearly, there are some significant differences between single- and multi-family properties. Before you decide to invest in real estate with multiple units, spend some time researching this property type so you have a better understanding of how they differ from single-family homes, and to help you decide whether or not multi-family investment is right for you.