Understanding the Differences Between Investing In Multifamily & Single-Family Homes

Print Friendly

Real estate investment options are diverse, with multifamily and single-family properties representing two distinct avenues. Each type offers unique advantages and considerations that investors should comprehend before making investment decisions.

1. Financing Variances

One of the primary disparities between multifamily and single-family homes lies in financing structures. Multifamily properties typically involve shorter-term mortgages with different terms compared to single-family homes.

Multifamily Mortgage Dynamics

Financing for multifamily properties often involves loans structured with shorter terms. These loans may carry different terms, such as adjustable rates or terms tailored specifically for multifamily investments. Lenders assess multifamily properties based on their income potential rather than just the creditworthiness of the borrower. This approach takes into account the property’s ability to generate revenue through multiple units, influencing the terms and conditions of the loan.

Single-Family Mortgage Characteristics

Contrarily, single-family homes usually feature more conventional mortgage options with longer terms. The financing for these properties typically aligns with standard residential mortgage products offered by financial institutions. The assessment criteria primarily revolve around the borrower’s credit history, income, and debt-to-income ratio.

2. Influence of Multiple Listing Service (MLS) and Broker Relationships

Another significant distinction between multifamily and single-family properties lies in their market accessibility.

Multifamily Property Transactions

In the multifamily property market, there is typically no Multiple Listing Service (MLS) available, as seen in the single-family home market. Multifamily properties often rely more heavily on broker relationships to secure deals. Investors looking for multifamily properties must establish strong ties with brokers specializing in commercial real estate or multifamily properties. These relationships are instrumental in gaining access to off-market deals and opportunities not publicly listed.

In the smaller multifamily properties, you may see them occasionally marketed on the MLS, but the larger properties are rarely listed on an MLS.

Single-Family Homes and MLS

Contrastingly, single-family homes are frequently listed on the Multiple Listing Service (MLS), an extensive database used by real estate professionals to advertise properties for sale. This accessibility makes single-family homes more visible to a wider pool of potential buyers and investors, creating a more transparent market environment.

Typically, in a multifamily transaction, broker’s commissions are not split. The listing broker is the one who collects the entire commission, and most times, does not share commissions with other parties.

Understanding these fundamental differences between multifamily and single-family homes provides investors with essential insights into the distinct dynamics and considerations associated with each type of real estate investment.

Source: Jake and Gino