What is Multifamily Housing?

What is Multifamily Housing?

Posted by on Apr 30, 2021


In the simplest terms, multi-family housing is a housing unit that more than one family unit can occupy. The asset, which may also be referred to as a multi-tenant property or multiple dwelling unit, is often abbreviated to MFH. MFH can mean a duplex, which consists of two homes side by side, sharing at least one common wall (or stacked, with one unit comprising the downstairs and another the upstairs). At the other end of the MFH spectrum, apartment complexes can house thousands of families in sprawling developments with significant amenities. Another variation is mixed-use developments, in which the lower floors are occupied by commercial and retail spaces, while the upper floors are devoted to housing.

If you are an investor, multi-family housing may be a desirable prospect for your consideration. You may already own single-family rentals, and perhaps you are considering expanding into other types of rental properties.

How do I Finance Multifamily Housing?

While the outlay for a multi-family property is higher than the purchase price for a typical single-family residence, you may find that it is not much more challenging to finance. MFH often has a more consistent cash flow which the lender may find attractive. Consider a twenty-unit apartment complex: if two tenants move out, you have a ten percent vacancy rate. If you have three single-family homes you rent out, and two tenants leave, you have a two-thirds vacancy rate.

Buying "in bulk" is also more efficient for an investor who wants to own more individual units. If you purchase that twenty-unit complex, you easily acquire twenty rental units instead of finding, financing, and acquiring twenty separate residences in individual transactions if you bought single-family residences to rent.

How do I Manage Multifamily Housing?

As an investor, if you are actively managing your single-family rentals (serving as the leasing agent, handyman, and so forth), the transition into multi-family housing may be the right time to also move toward shifting the management of property responsibilities to a professional. One reason is simply that the volume of work may no longer be manageable, and the location may not be accessible.

Hiring a property manager or property management company may have other advantages as well—freeing your time to focus on investment identification and strategic planning rather than doing background checks on potential tenants and chasing down late rent payments.

If MFH a Good Investment?

Multi-family housing is considered a worthwhile investment. Like other housing categories, the niche may be buffered from some market sector drops because people always have to live somewhere. Even when housing sales are down, demand for rentals continues, even increases.

The variety of multi-family housing options ensures that you can find a niche that appeals to you—whether it is economy studios, high-end retirement communities, student-centered units, or other particular targeted markets. Also, while direct investment is a potential approach, you can choose to engage the multi-family product through syndication or fractional investment opportunities. Multi-family housing offers benefits for many investors.

This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.

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