What Exactly Is a Multifamily Home and Is It the Right Investment for Me?

When you hear the term “multifamily home,” what comes to mind? For those who aren’t particularly real-estate savvy, you may picture images of the in-laws moving in, or perhaps even the aunts, uncles, and cousins to boot! What about the friends who come to visit for a week and end up staying … indefinitely? Cringe.

Luckily, that isn’t necessarily what a multifamily home is. A multifamily home is a residential property that has one or more housing units — and you’ll find it in many forms.

Multifamily homes can also be a great way to begin your foray as a real estate investor. They can serve as a wealth-building tool and as a way to generate passive income. While there are many potential financial benefits, it’s important to know not just the basics, but also the pros and cons, and the best strategies for purchasing a multifamily home.

Sit back and relax. Make a cup of tea or grab yourself a cold one. We’re about to do all the heavy lifting for you and give you the 411 on all there is to know about multifamily homes. Ready? Let’s get to it.

What is a multifamily home?

A multifamily home is housing involving or common to more than one family. More specifically, The Law Dictionary defines a multifamily home as a structure built “to house several different families in separate housing units. The entire building or structure may be owned by one person, a company, or by individuals who have purchased units, as is the case with condominiums. An apartment building is the most common multifamily housing type.” Leave it to the lawyers to be exceptionally thorough. Moreover, with multifamily homes, each dwelling unit typically has its own address, kitchen, bathroom, entrance, and utility meter.

In other words, a multifamily home is a residential property that houses separate residences where more than one family can live completely independently of each other. It isn’t a home that simply has enough basement space for your college grad. In fact, residential multifamily homes have four units or less. Technically speaking, if the building has more than four units, then it qualifies as a commercial property. Of course, commercial real estate differs from residential real estate and we’ll only be covering residential real estate in this article.

Lastly, it is worth pointing out that in multifamily homes, the owner often opts to live in one of the units. If this is the case, it is considered an owner-occupied property. However, it’s not a requirement for the owner to occupy a unit. That said, there are certainly cost-saving benefits to occupying a unit yourself (more on this later).

Types of multifamily units

How about a lightning-fast overview of the different types of multifamily units? We’ll just go ahead and take that as a yes.

Duplex

A duplex is a house that is divided into two separate homes or two units in one singular building — regardless of how the units are arranged. Units may be stacked on top of each other with one unit per floor or side by side.

Triplex

A triplex is also known as a three flat. This is when there are three units existing side by side or in a three-story configuration.

Quadplex

A quadplex is also called a fourplex and — as you might have guessed — is a multifamily housing unit that is divided into four units existing side by side, or as two first-floor units and two second-floor units. While from the outside a quadplex may appear to be just one big house, the interior is clearly divided into four separate dwelling units.

Townhouse

A townhouse is defined quite simply as a house that is joined to another house. Usually, a townhouse is one in a row of similar houses that are joined by a shared wall, but all have separate entrances. These attached side-by-side houses may also be called townhomes or row houses.

Often confused with a condo, as both are usually part of complexes, there is one key difference between a condo and a townhouse. With a condo, an owner only owns the inside of the residence itself — not the land or the building’s exterior. In a townhouse, the owner will usually own the inside, outside, and the plot of land it sits on.

Condominium

A condominium is a privately owned individual unit within a community of other units. Condo owners share common areas, such as pools, gyms, and garages, but they are only responsible for the upkeep and maintenance of their own interior dwelling space. That means that there is no lawn to cut, no flowerbeds to maintain, or driveways to be cleared of snow.

Apartment complex

An apartment complex is a building or a group of buildings on one lot under single ownership, with at least one building, and containing three or more dwelling units. Remember that for an apartment building to qualify as a residential property it must have four or fewer units. If it has more than four units it is deemed as commercial real estate.

Semi-detached house

A semi-detached house is a single-family home that simply shares a common wall with another home. These are quite similar to townhomes, yet are often the result of building additions to pre-existing homes.