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What Is a Multifamily Home and How Do I Buy One?

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Content was accurate at the time of publication.

Multifamily homes can be a great way to get started in real estate investing. You only need one real estate transaction to purchase several units and earn multiple streams of passive income. Learn about the types of multifamily homes and get help deciding which one is right for you.

What is a multifamily home?

The strict definition of a multifamily home depends on who you ask. The U.S. Census Bureau defines it as a residential building with at least two units that aren’t separated by a ground-to-roof wall or that share facilities, such as plumbing. However, lenders draw the line at properties with five or more separate housing units. This matters because financing multifamily homes with five or more units requires a commercial mortgage, which is typically more expensive than a normal, residential mortgage.

No matter the amount of units, each must allow its residents to be self-sufficient, with separate kitchens, bathrooms, entrances and utility meters. Dwellings that aren’t multifamily include college dorms and single-family homes.

What is a single-family home?

The typical image of a single-family home is one residential building surrounded by its own parcel of land outlined with a white picket fence. Yet, a property with one to four units can legally be considered single-family housing. Multigenerational families can take advantage of this, with grandparents, parents, siblings and children living separately but close to each other.

Types of multifamily properties

Here are the main types of multifamily properties. It starts with housing types that have the lowest number of units and still classify as a multifamily home, according to the U.S. Census Bureau’s definition of multifamily housing, and goes up to conventional apartments, which can have hundreds of units.

House type Description 
Duplex/triplex/quadruplexA house with two, three or four units and any number of stories.
Townhouse/row houseA building that has at least two stories and at least two units joined by common walls, located in a complex of such dwellings.
CondoA building consisting of several units wherein each owner owns the interior of the unit and holds a joint ownership of the exterior, common areas and facilities of the building, such as the land, roof, elevators, etc.
Conventional apartmentsA building consisting of several units that are built above and below each other.

NOTE: If the owner lives in one of the units, the land is also called “owner-occupied property.”

Pros and cons of multifamily housing


  • You’ll likely earn rental income. The income from the individual(s) renting the unit(s) can help you pay off debt, build equity in the property, increase your savings and/or enjoy a more affluent lifestyle. This is one way you can house hack.
  • You’ll have a large cash flow. With the income from monthly rent, you’ll have a regular injection of liquidity into your finances.
  • Your risk is diversified. With a larger pool of tenants, the ability to pay the mortgage isn’t dependent on one or two people, but several.
  • You can earn tax benefits. You could write off the mortgage interest and the cost of repairs, maintenance and advertising as a business expense.

Additionally, if you live on the property:

  • Your mortgage will be covered. If you live on the property, it’s likely that the income from the renters will more-than cover the mortgage for the entire property.
  • You have the ability to respond quickly to tenant issues. You may be literally a few steps away from any issue that crops up and be able to handle it quickly before any damage is done.
  • It can be ideal for a multigenerational family. A multifamily dwelling may provide the ideal living situation for adult children and aging parents.
  • You can move out and keep the property as an investment. If the time comes when you want to move out, you don’t have to sell the place. You could refinance it as an investment property.


  • There’s a high upfront cost. A larger property most likely has a bigger price tag. This can also translate to a large down payment, a higher tax bill and a higher homeowners insurance premium, especially if you need a commercial loan.
  • You may need a large cash cushion. Depending on the type of loan you’re getting, you may be required to have a certain amount of cash reserves on hand — in many cases, at least six months’ worth of mortgage payments.
  • It takes time, work and money to be a landlord. If you’re managing the property yourself and you have multiple tenants, you might be busy. Doing maintenance and repairs costs money, whether you do it yourself or pay professionals.
  • Competition to buy multifamily housing may be intense. Based on zoning laws and market forces, there may not be a large supply of multifamily housing in the area you want to live or invest in.
  • There’s the potential for vacancies and late payments. Your units may not always have a tenant. Tenants may be forgetful and not pay on time or fall on hard times and skip rent payments altogether.
  • The property can be more complicated to sell. Not everyone is interested in or able to afford a multifamily property.

If you live on the property (and don’t have a property manager):

  • Personal responsibility. Tenants could knock on your door at any time with complaints or emergency maintenance and repair requests.
  • Your home/housing is also your business. It can be hard to separate work and relaxation. You’ll need to professionally handle the business side of things, like noise complaints, even as you experience them yourself.

Who are multifamily homes best for?

Is a multifamily home best for you? If the pros outweigh the cons and the math makes sense, go for it! Multifamily homes can be useful for a variety of buyers.

New investors. If you’re looking to begin investing in real estate, a smaller multifamily home can be a great starting point that provides income and covers your own mortgage costs.

Large families. If you have a large family — multigenerational and/or extended — a multifamily home can allow your family members to retain independence and privacy while still being near each other.

Experienced investors. Properties with multifamily homes can be huge. Large apartment complexes can have several hundred units. For experienced investors, multiple units can generate a steady cash flow from rental income and lower the risk because there is a large network of tenants.

How to buy a multifamily home

1. Set your budget expectations

Be conservative in your estimates. You don’t want to default on the mortgage if you have a vacancy for a while, or one tenant isn’t able to make rent.

2. Get preapproved

Research what lenders are offering by looking online or talking with a mortgage broker. You can get a sense of how much you’ll be able to borrow by getting a mortgage preapproval. Ask lenders whether they have experience with multi-unit property loans.

Getting preapproved also helps you to make a move on an available property quickly when the market is hot.

3. Decide on a property

As you look for a multifamily home, keep a few things in mind, including location, the number of units you want and the rental prices the property could command. In real estate, location is supremely important as it can determine how in-demand your units are. Hot markets limit vacancies and call for higher rental prices in exchange for higher asking prices.

4. Shop around for a mortgage

Now that you have the exact property ready, shop around for a mortgage with three to five different lenders to compare interest rates and loan terms. Each lender calculates risk in a slightly different way, so you can get varying offers from each lender you apply with. The three main credit bureaus allow a two-week window for consumers to comparison shop, so it doesn’t hurt your credit score to apply with several lenders any more than it does to apply with just one, as long as you complete all applications within 14 days.

Getting multiple offers also means you have leverage to negotiate. You can tell the creditors you’re getting multiple offers and ask them if they can make their offer any more competitive.

5. Close the deal

Closing on a multifamily home can involve more work than you’d expect in a single-family home sale. Lenders will likely request a current tenant list (if there is one) and documentation on whether the home has a rental history.

But once you sign your docs, congratulations! Ideally, your investment will pay for itself.

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