What is Multi-Family?

What is Multi-family Real Estate?

No matter the level of experience one has, brushing up some real estate basics never hurts.  If you are an active player in the real estate investing game and have been for a while, investing in multi-family real estate might not be a foreign concept to you.  However, real investing for beginners can be a bit confusing.  The real estate industry is a vast space.  To make things easier and for this purpose we will cover big market, multi-family real estate.  

The question still is what is multi-family real estate?  Multi-family property is a residential building with more than one housing unit.  Multi-family real estate can accommodate multiple tenants, each having their own rental unit with its own bedrooms, baths and kitchens.  Multi-family buildings are also known as a multi dwelling (MDU) and these multiple separate units can also be held in one or several buildings in the same complex.  

Why is multi-family so much more productive for an investment?  The simple answer is economies of scale.  An illustration of how this works and why it works so well is: Single Family housing (SFH) verses Multi-family housing.  Consider 100 single family homes scattered through the city.  You have 100 structures, roofs, and furnaces and that is not to mention when it is time to collet rent and run around to 100 independent sites.  

Expenses on multi-family housing typically run in the 50% -55% range for a well-run project.  In SFH expense ratios run in the 70%-75%.  It is clear with just those expense numbers you make more money in MF,  and when you own a SFH and you have a mortgage payment with no tenant in the property paying that monthly payment out of pocket is painful.  The flip side is a 100-unit MF property.  Even with a vacancy rate the bills can still be paid from the rents and tenants living in the property.  

There are several different types of multi-family products.  Let us look at some specific product types.  Think these through and be clear on the type that may interest you to own and operate.   The following is a list of the different products in this class:

  • Market rate rentals
  • New construction housing
  • Student housing
  • Medical housing
  • Sober living facilities
  • Affordable housing
  • Tax credit deal
  • Senior hosing
  • Short term rentals 

I have always preferred market-rate rental.  They have always made the most sense for a turnkey and a turn, around with immediate cash flow and reward.  You may look at these categories and be attracted to a different class.  Do your homework.  Within each of these product classes, they are broken down into subcategories for product and markets A, B, C, and D.