Buying a single-family home means purchasing a property that just your family, or another family, can live in. But when you buy a multifamily home, several families can live under the same roof (hence the name).
A multifamily home is defined as a property with more than one dwelling unit. Each unit must have access to its own kitchen, bathrooms, utilities, and so forth, but all of the units are still located under the same roof. Residential multifamily homes max out at four individual units, while nonresidential multifamily homes (like apartment buildings) have five units or more. For the purposes of this discussion, we’ll assume you’re thinking of buying a residential multifamily property, especially if this is your first foray into real estate investing. With that in mind, here are a few reasons to choose a multifamily home over a single-family home.
1. The option to collect rental income
When you buy a home that can house more than one family, you get the option to rent out whichever units you don’t need for your own family. That rental income can then help you cover your property ownership costs, or simply increase your cash flow. It can also help you pay off your mortgage sooner, thereby saving yourself interest over the life of your loan.
2. Easy multigenerational living
Sometimes, family members move in together to help one another out, or save money on housing costs collectively. But living in shared quarters is easier said than done when you’re talking about, say, two grown adults with children plus those children’s grandparents. The benefit of buying a multifamily home is that you’ll have the option to live together, but separately. And having that layer of privacy could make for a more harmonious arrangement.
3. Added tax breaks
When you own a home, you’re eligible for a number of tax breaks, like the option to deduct your mortgage interest or write off your property taxes. But when you own a multifamily home with rental units, you may be eligible to deduct expenses related to the units you don’t live in yourself, such as maintenance, upgrades, and depreciation on the property.
4. Easier financing
Multifamily homes tend to cost more than single-family properties, and as such, you’d think it would be harder to secure a mortgage on them. Not so. It’s often easier to qualify for a property that has the potential to generate income like a multifamily home does, but more so than that, mortgage limits (the amount lenders can loan to borrowers) are higher for multifamily homes than they are for single-family homes.
For example, in most of the country, mortgage limits for conforming loans top out at $484,350 for single-family homes. But for two-unit properties, they go up to $620,200. Similarly, the limit for Federal Housing Administration (FHA) loans is $314,827, but for a two-unit multifamily property, it's $403,125.