Multi-family or Apartments? What’s the difference?
Joe Real Estate developer just called me and asked me to invest in his property with four, two-bedroom, two-bath units with a small yard. Is this a multi-family unit or a small apartment complex? What should I consider before investing?
Knowing the right answer to this question can affect my bottom line. There is a difference between multi-family residential and apartments. It’s important for investors and agents to know what those differences are because it can make a difference in their investment expectations and how the units are marketed and sold.
Let’s start with the basics. A multi-unit housing facility is generally found in between dense city populations and single-family residential or suburban areas. They include duplex, triplex and forplex (quadroplex) residential properties.
Once the units clustered together exceed four units, they are defined as an apartment which is a commercial property. This is important because they operate under difference building codes, zoning and structural requirements (think safety and risk management) as well as under different loan and insurance types.
There are economies of scale when it comes to investing in multi-unit residential or apartments. While you might receive tax benefits personally for living in your multi-unit apartment, you may receive government subsidies and different taxation structures when investing in apartments. These vary from state to state, and are worth investigating. An apartment owner who receives subsidies from the government to lower their mortgage, rehabilitate or build new apartments has the trade-off of setting aside a certain percentage of apartments for low-income tenants.
The economies of scale work for maintenance as well. Consider owning seven different homes with seven different families in occupancy across the city, state or country. Logistics for maintenance can become an issue quickly. With apartments or multi-unit housing maintenance can be outsourced and consolidated.
As with anything, a little thought and research can have a big impact on your bottom line.