Multifamily Properties- Commercial vs Residential

More so now than ever before, investors are buying multifamily housing. If you are considering making the jump into this lucrative market there are several key factors you need to know about. Particularly, differentiating a commercial property from a residential property.

To make it simple, a property with four or less dwellings (units) is a residential property. This means an investor may obtain a residential mortgage on the property if they intend to occupy one of the dwellings, a very attractive option for an investor who is just starting to get their feet wet with multifamily housing. A lower down payment would be required for this transaction which sweetens the deal even further.

A property with 5 or more dwellings (units) is considered commercial. Stricter lending guidelines apply when obtaining financing for such properties. Generally the required down payment amount would be 25%-30%, even if the owner intended to occupy one of the dwellings.

When dealing with a multifamily purchase, it is best to work with a commercial realtor as opposed to a traditional residential realtor. Negotiation points such as cap rate or cash on cash return can be used to obtain the best pricing, it is important your broker understand the nuances of these negotiation points. As always, you should work with an experienced commercial broker!