Multi-Family real estate encompasses a broad spectrum of the real estate industry. Within this category, there are several subcategories and types of multi-family real estate. These differences are largely based upon the number of units at each property.
Technically speaking, multi-family real estate is anything with more than one dwelling unit. By this definition, the sector starts on the low end with two dwelling unit properties or duplexes. Investing in a duplex up to four unit properties is typically done by following an owner/investor model. This is primarily driven by financing options as first time home buyers are able to purchase up to a four unit property using a variety of low down payment financing options designed to increase home ownership.
This size property would typically be much smaller than makes sense for a property to have full management in place and requires some ongoing involvement and a more ‘hands-on’ ownership role. This property size and category is great for individuals looking to get started in real estate investing, but is much more challenging to make financially viable at scale.
Small Commercial Multi-Family
Driven by financing options, anything with five units or greater typically falls within commercial lending programs that have higher down payment and more strict lending requirements. On the lower end of this segment, it is common to find investors who began by purchasing two or four unit properties who sold those properties to roll the proceeds into buildings with a larger unit count. As such, it is common to find owner/investors operating properties ranging from five to ten or twelve unit buildings.
Based upon the property size, it is sometimes viable to hire a management firm to oversee the daily operation of the properties, but this unit size generally still requires a hands-on owner/investor to a smaller degree.
Generally speaking, when a property has over twelve or fifteen units it is much easier to engage a management company to oversee most of the daily property demands and still achieve a financially compelling return. With the larger unit count and additional expense related to investing in these larger properties individual investors typically use a partnership or invest through a pooled fund structure.
This category of Multi-Family real estate extends to large mixed use buildings that contain 50 or more residential units with some kind of retail or public areas depending upon the location of the property.
Understanding each category and the unique demands required to successfully generate compelling financial returns one of the most important factors to consider when determining where and how you want to invest.
At Figure 9 Real Estate, we work with investors at all levels and would be happy to provide a complimentary consultation to answer any questions you may have and help you determine which Multi-Family investment category works best for you. Schedule your Free Consultation today.