What is a Multi-Unit Home?

A multi-unit home is a residential building divided into multiple housing units, each with a living space, kitchen, and bathroom.

A Longer Definition: Multi-Unit Home

Multi-unit homes are residential buildings segmented into distinct living spaces to house multiple households. Each residence in a multi-unit must have a kitchen, bathroom, living area, and its own entranceway. Units may be side-by-side or stacked vertically and function independently.

A mortgage company will refer to multi-unit homes as 2-unit homes, 3-unit homes, and 4-unit homes. A first-time home buyer, however, may hear multi-homes referred to by different names depending on where they’re buying property.

2-Unit Homes

• Duplex: The most common term used nationwide
• Double: Used in some regions, particularly in the Northeast
• Twin Home: Mostly used in the Midwest
• Chicago Coach House: Specific to Chicago, these are often historical buildings converted into two units

3-Unit Homes

• Triplex: Widely used across the United States
• Three-Flat: Common in Chicago, referring to a building with three separate units
• Triple Decker: Predominantly used in New England, especially in Massachusetts

4-Unit Homes

• Fourplex or Quadplex: These terms are interchangeably used across the U.S.
• Four-Flat: Similar to the three-flat, but with four units, mostly heard in Chicago
• Box Building: This is a less common term but used in some urban areas

Mortgage lenders underwrite multi-unit homes differently from 1-unit homes such as detached homes and condominiums. Typically, but not always, multi-unit mortgages require larger down payments and a higher credit score to get approved. They may also require more reserves in the bank.

Homes with more than five units or more are considered commercial properties and are not eligible for residential mortgage financing.

Multi-Unit Home: A Real World Example

Imagine a first-time home buyer facing high real estate prices in a medium-sized city. To make living in the city more affordable, they decide to “house hack” and purchase a 3-unit home to live in one unit and rent out the other two.

The rental income from the two extra units covers the majority of the home’s overall monthly PITI and home maintenance costs. It also provides extra cash for making urgent repairs and adding curb appeal.

The buyer didn’t set out to purchase a multi-unit home at first, but it proved to be their best way to stop renting and start owning, and to gain valuable real estate experience in the process.

Common Questions About Multi-Unit Homes

What are the benefits of buying a multi-unit home as a first-time buyer?

Multi-unit homes offer the opportunity to generate rental income, which can help offset mortgage costs. This can make homeownership more affordable and provide a valuable investment opportunity.

Can I qualify for a mortgage on a multi-unit home with the same terms as a single-family home?

Mortgages for multi-unit homes often have different requirements than those for single-family homes. Lenders may require a larger down payment and have stricter borrower qualifications.

Is it more expensive to insure a multi-unit home compared to a single-family home?

Insurance costs for multi-unit homes can be higher due to the increased liability and potential for more frequent claims associated with having tenants.

How does financing a multi-unit home differ from a single-family home?

Financing a multi-unit home can differ in loan requirements, interest rates, and down payment percentages. Lenders often view multi-unit properties as higher risk, potentially leading to stricter lending criteria and sometimes higher interest rates than single-family homes.

Can each unit in a multi-unit home be sold separately?

Whether units in a multi-unit home can be sold separately depends on how the property is legally structured. If the units are classified as condominiums, each unit can typically be sold individually. However, the entire building is usually sold as one piece if it’s a standard multi-unit property like a duplex.

What are the tax implications of owning a multi-unit home?

Owning a multi-unit home can have unique tax implications, particularly if units are rented out. Rental income must be reported, but owners can deduct certain expenses like maintenance, repairs, and property taxes. The specifics can vary, so owners should consult with a tax professional.

How is a multi-unit home different from an apartment complex?

A multi-unit home typically consists of a smaller number of units (like duplexes or triplexes) and is often owned by a single entity or individual. In contrast, an apartment complex usually has many units and is designed for larger-scale residential occupancy, often managed by a property management company.

Do multi-unit homes have shared common areas?

It depends on the design of the multi-unit home. Some may have shared common areas like yards, laundry rooms, or entryways, while others might offer separate amenities for each unit.