While many buyers have the typical single-family home on their minds when looking for a residential property, multi-family homes have become a hot commodity in real estate.
What should you choose for your next real estate purchase?
In this piece, we’ll dive into why multi-family homes should be on your radar and how to find the perfect property to fit your needs.
In Massachusetts, you usually can’t go too far without spotting a multi-family home.
These buildings have between two and four housing units (any more than four and it's considered a commercial property) and each of the units is self-sufficient. Families living in these units have their own address, kitchen, bathroom, entrance, utility meter and more.
There are two very different reasons why buyers may choose the multi-family housing route.
It comes down to whether you’re looking to purchase an individual unit within a multi-family structure or buy the whole building and rent out the units. The first of these options makes sense for families who are looking for affordable alternatives to single-family homes, while the second is for those looking to build a real estate investment portfolio.
5 Important Questions To Ask When Choosing to Buy a Home
Owning a separate unit
For some multi-family homes, like townhouses and semi-detached houses, it’s common for families to buy the individual units. This is a popular option for many homebuyers, because it's more affordable than buying a single-family home, and often provides access to some form of community. This could be a great option for first-time buyers hoping to start building equity or those ready to downsize.
On the other hand, owning a unit in a multi-family structure often means less privacy, smaller spaces, lower resale value and possible restrictions on how much control you have over the interior and exterior of your property.
Owning the building
For other multi-family properties, like triplexes, it’s not unusual to purchase the whole building and rent out individual units. This is a great way to expand your real estate portfolio and invest in property that will appreciate over time. Because multi-family homes are a solid investment, buyers may face a competitive buyer landscape. Costs for these properties will also be higher than single-family homes, due to the size of the buildings.
When you purchase the whole building, you’ll function as the landlord and may live in the building or elsewhere. Tenants provide a stream of rental income that will keep your cash flow steady and as a landlord, you’ll also earn certain tax benefits.
On the flip side, you’ll also be at the whim of your tenants and will be in charge of ensuring their rent is paid on time, units are being maintained, etc. Depending on the agreement with the seller, you may inherit tenants in this scenario. You’ll also have responsibilities like overall property maintenance, insuring the building and more. Lastly, you’ll face more legal and regulatory liability than you would as the owner of a single unit.
Now that you know the different reasons to consider multi-family housing ownership, it’s time to break down some of the common property types. It can be tricky to distinguish how these properties differ and why you’d choose one over another, so here’s an overview of the basics.
Townhouses:
Townhouses are often tall and thin buildings, common in urban settings. These buildings are usually multiple stories high and share at least two walls with other townhouses in the row. If you own a townhouse, you own both the interior and exterior of your property, including any outdoor space.
Because of the close proximity to other residences, townhouses are typically more affordable than single-family homes. However, owners can usually decorate and renovate as they please (except in cases where Homeowners Associations – called HOAs – dictate otherwise). Also, owners often enjoy the perks of shared amenities and community.
Semi-detached houses:
Semi-detached houses are exactly like they sound: houses that are not completely detached from each other and share one wall. Usually, the two houses that are attached will have the exact same or similar layout, size and design (although owners can make changes that may impact how it looks).
Because of the common wall, these properties are also more affordable than single-family homes. Semi-detached houses usually have more indoor and outdoor space than townhouses, which adds to their appeal.
Duplexes/triplexes/quadplexes:
Sometimes, a residential structure is divided into two, three or four housing units that are side-by-side or stacked vertically. These are referred to as duplexes, triplexes and quadplexes (or fourplexes). Unlike the other two examples, these buildings usually have one owner who rents out the units to individuals or families.
Just like single-family home hunting, there’s a lot of research that goes into finding the right multi-family home to purchase. The research you do and questions you ask will differ based on your goals.
To make as informed a decision as possible, nail down the basics: what the housing market looks like, what your price range is, where you’re willing (or not willing) to compromise and if you’re interested on it being used as an investment property.
One thing to know about multi-family homes is that they have different mortgage requirements that depend on the type of multi-family and what it’s being used for. For example if you are purchasing a multi-family to be used as an investment property, you are required to put 25% down. As for a primary multi-family which is two-units, generally it requires 15% down. However at Rockland Trust you can put 5% down if you have 12 months of reserves and qualify for Private Mortgage Insurance.*
Also, think long and hard about location – it will determine the availability and cost of homes in your local market, as well as what you have access to in the area. Lastly, consider how your home will match up with your lifestyle:
Asking the right questions ahead of time will make sure you find a home that matches your needs.
Whether you’re interested in owning just one unit or investing in the building, Rockland Trust’s team of mortgage specialists can help you navigate the market for multi-family homes and manage the process – from dream to house keys. Our Learning Center has lots of articles about homeownership, of all shapes and sizes.
*Please note that down payment and reserves requirements vary depending on the of property you’re purchasing and the lender your working with.
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