Multifamily properties account for 31.4% of U.S. housing, making them a major real estate asset class. They’re a popular investment type because of steady demand and economies of scale. For new investors, buying a smaller multifamily home and living in one unit while renting the others can be a great way to get started.
What exactly is a multifamily home, and how do you go about buying one? This article covers the various types, how you can get started, and financing options.
What is a multifamily home?
A multifamily home is any property with more than one housing unit. This includes duplexes, triplexes, fourplexes, and larger apartment buildings with hundreds of units.
If a property has more than four units, lenders classify it as commercial real estate, which changes financing options, zoning rules, regulations and property taxes. Owners can live in one unit and rent out the others or rent out the entire property as an investment.
Multifamily homes vs single family homes
There are several differences between these housing classes:
| Characteristic | Multifamily | Single family |
| Number of units | Two or more units in one property | One unit |
| Classification | Properties with more than four units are considered commercial | Residential classification |
| Income potential | Rental income from multiple units | Rental income from a single tenant or household |
| Financing | Conventional or commercial loans depending on the number of units | Conventional loans |
| Management | Requires more oversight or hiring a property manager | Easier to manage |
| Expenses | Higher maintenance and operating costs | Lower expenses |
| Buying market | Investors | Residents |
| Risk | Reduced impact of vacancies | Lost income if tenant moves out |
Different types of multifamily homes
There are many different kinds of buildings that fall under the category of multifamily housing, including:
- Garden-style apartments: These low-rise residential buildings have one to three stories, with open space, lawns, or courtyards between structures.
- Townhomes and semi-detached houses: Townhomes are multi-level homes that share walls but have their own entrance and outdoor spaces. Semi-detached houses are similar but only share one wall with a neighboring home.
- Duplex/triplex homes: Duplexes have two units in one building, and triplexes have three. They can be side-by-side, stacked vertically, or a combination of both.
- Condominiums: These are considered multifamily homes because each owned unit is part of a larger building or community. Owners share amenities like pools and gyms, and a homeowner’s association handles maintenance.
Pros and cons of multifamily homes
Like any real estate investment, there are pros and cons to investing in multifamily housing:
| Pros | Cons |
| Higher rental income | Higher costs |
| Reduced impact of vacancies | Management complexity with more leases, tenants, and units |
| Shared costs across multiple units | Shared walls and common areas mean less privacy |
| Easier financing process | Stricter local regulations and zoning |
| Property value can increase with improvements | More units require more maintenance |
Pros of multifamily homes
- Rental income: One of the big advantages of multifamily properties is that they can generate more passive income. Since each unit brings in rent, these investments provide multiple streams of revenue.
- More space: This property type can include more space for amenities and common areas like a pool, gym, or outdoor courtyards. Some renters prefer having access to these resources and the sense of community that comes with them.
- Investment opportunity: Multifamily residential properties give investors more routes to increase returns with strategies like short-term rentals or repositioning properties for higher profitability.
- Living close to family: Some families may choose to rent multiple units in the same building instead of living in separate dwellings. This allows extended families to stay near each other while still having their own space.
- Lower risk: The reduced impact of vacancies and the ability to spread maintenance costs across multiple rental units mean these properties can lower overall investment risk.
- Tax benefits: Investors can reduce taxable income through deductions like depreciation and property expenses. They can also defer capital gains taxes on a sale by using a 1031 Exchange to reinvest in another property.
- Potential for value appreciation: A common strategy for multifamily homes is to make improvements that justify higher rents, like renovations or adding new amenities.
- Easier financing: Multifamily housing can have easier financing logistics than single-family homes. This is because you can buy multiple units with a single loan, appraisal, and closing process instead of going through it separately for each property.
Cons of multifamily homes
- Higher initial cost: These properties can have a higher purchase price than buying a single family house, so you’ll need a higher down payment.
- Maintenance costs: The upkeep of individual unit systems like HVAC or increased usage of common areas can raise overall maintenance costs.
- Less privacy: Residents share walls and common areas, which means they have less privacy.
- Management responsibilities: Managing a multifamily property means managing multiple leases, tenant issues, and maintenance requests.
- Possible tenant issues: More tenants mean a higher chance of late payments, personality conflicts among residents, or other issues.
- Zoning and legal restrictions: Multifamily homes might have more regulations around building codes, parking, environmental standards, or other local laws that impact cost and use flexibility.
- Potential for noise issues: With more than one family living in closer areas, residents may hear sounds from neighbors, like conversations, TVs, or footsteps.
Where and how to search for multifamily properties
Multifamily housing exists in every state and city, accounting for more than one-third of all commercial real estate sales in 2024. Here are some ways to find these homes:
- Listing platforms: Start with online listing platforms to search for properties in a specific location. This initial research can provide information about current market trends, costs per unit, and CAP rates.
- Real estate agents: Agents and brokers can provide deeper market information, search for listings, and potentially connect you with off-market opportunities.
- Direct contact: Access public records with county offices or data providers to find multifamily housing owners and contact them directly to see if they’d be interested in selling.
- Networking: Build a network of local contacts, such as property managers, other real estate investors, and contractors who might come across apartment buildings or smaller multifamily properties available for sale.
Things to consider when investing in a multifamily home
Analyzing the following areas can help you make the best investment choice:
- Property location: Location is one of the biggest factors for investment success. Look for areas with strong job growth, good schools, and convenient amenities like transportation and retail.
- Potential rental income: Check rental rates for similar properties to estimate income. The rent should be enough to cover expenses like the mortgage, maintenance, and property management while still leaving room for profit.
- Number of units: More units can help spread out costs, but they also mean more maintenance, repairs, and tenant issues.
- Seller’s reputation: Know who you’re buying from. Do they take care of their properties, or do they cut corners and hide issues? Ask around or look into their past deals before making an offer.
- Property maintenance and condition: Assess if the current owner stayed current with repairs or if there’s deferred maintenance. Outdated systems and neglect can create future expenses but can also provide negotiation opportunities for a lower purchase price.
- Local market demand: Research supply and demand in the area, considering new apartment construction, multifamily housing trends, absorption rates, and population growth.
- Zoning laws and regulations: Understand how zoning laws, building codes, and proposed regulations could impact the property. Look into rules on parking, short-term rentals, and any restrictions that might affect your investment.
Step by step process of buying a multifamily home
The steps to buy a multifamily home are:
- Determine your budget: Assess how much capital you have to buy and support a multifamily property. The purchase is just one part of the equation. You may also need reserves for renovations and initial operating costs.
- Get pre-approved for a loan: Contact lenders like traditional banks or credit unions to get pre-approved for financing.
- Find a real estate agent: Research or ask other real estate investors to find an agent who understands the local real estate market and has experience with multifamily housing.
- Start searching for properties: Work with your agent and your network to find opportunities.
- Analyze potential rental income and expenses: Review each property’s potential income and estimated expenses to understand profitability. Look at vacancy rates, maintenance costs, property management fees, and other operating expenses.
- Visit the properties: Walk through each potential property to check its condition, the tenants, and any obvious issues. Observe the neighborhood, nearby amenities, and overall curb appeal.
- Check zoning laws and property regulations: Make sure there are no restrictions that could impact your investment plans. For example, review occupancy limits and any permits needed for renovations or future changes.
- Make an offer: Base your offer on the property’s condition and any required repairs. To give yourself flexibility, you can also include contingencies for inspections or financing.
- Get an inspection and appraisal: The property appraisal helps determine financing amounts, while the inspection can uncover hidden issues.
- Negotiate and finalize the deal: After completing due diligence, work with your agent to negotiate the final terms.
- Close the deal: Review all the final documents, confirm financing, and sign the contract. Once you’ve completed everything, transfer the funds and take ownership of the property.
How to finance a multifamily property?
There are several possible ways you can finance multifamily properties, such as:
Conventional loans
Traditional banks offer conventional loans for properties with four units or less that meet their loan-to-value (LTV) and borrower financial requirements. These loans can provide terms ranging from 10 to 30 years, with interest rates depending on current market conditions and loan details.
Commercial loans
Lenders offer commercial loans for multifamily properties with five or more units. In addition to borrower financials and LTV, the underwriting process considers the property’s net operating income. The terms on these loans are shorter than those on conventional loans, ranging from 5 to 10 years.
FHA loans
FHA multifamily loans cover properties with four or fewer units and offer lower down payments and competitive interest rates. The drawback is that this type of loan doesn’t work for all scenarios since it requires the borrower to live in one unit as their main home for at least a year.
VA loans
Military service members and veterans may qualify for a VA loan to finance small multifamily properties with up to four units. These loans require the owner to live in one of the units but offer low rates, lower down payments, and flexible terms.
Real estate investment loans
Other loans available for multifamily housing include hard money, DSCR, private loans, and equity financing. These financing routes for commercial properties might offer flexible terms like interest-only payments and balloon payments. Lenders consider the property’s financials, investment potential, and equity to be the key criteria for loan approval.
Is a multifamily home a good investment?
A multifamily home can be a good investment, especially in markets with high demand for rentals. Multifamily housing consistently performs well in real estate, driven by housing shortages and affordability challenges that push more people toward renting instead of buying. These trends are also a key reason why 75% of commercial real estate investors plan to buy more multifamily properties in 2025.
The good news is that demand remains high, making multifamily homes a solid investment, while the bad news is that competition from other investors can drive up prices. That’s why market research on location, potential, and rental income should be a key part of your investment strategy.
Conclusion
The demand for multifamily housing isn’t slowing down, making it a proven option for investors looking for stability and long-term appreciation. Success comes down to picking the right location, securing strong financing, and maintaining a well-run property. With the right approach, these investments can be a smart addition to any portfolio.
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