What is a Multi-Unit Residential Building?
A multi-unit residential property is designed to provide two or more individual homes, situated on one lot, under one roof, with one owner. These properties consist of separate residences, entrances, and unit numbers.
Multi-unit properties share common interior walls and possibly a shared foyer or entryway, but each have their own kitchen, bathroom(s), and living room.
Styles and Formats for Multi-Unit Buildings
Multi-unit properties can be built with intentional planning or can result from the conversion of a single family home. Side by side units or stacked units are most common for multi-unit layouts.
Side by side multi-units are attached by one or more shared walls. The stairs for each unit are usually located along a shared wall. These residences usually have more than one level.
Stacked multi-units are similar to apartments or condos and consist of residences located above or below one another. These residences often consist of one level with no interior stairs.
Duplex: A duplex is one property on a single lot with one owner that contains two separate residences with two separate entrances. It is common for a duplex owner to live in one unit while renting out the other. Tenants do not have any ownership rights in a duplex situation, and the owner is responsible for the upkeep and insurance of the property.
Triplex: A triplex contains three unique residences, three separate entrances, and three individual unit numbers. Tenants usually share one or two common walls in triplexes, but each unit has its own kitchen, bathroom(s), and living room. Triplexes are often not permitted in residential zones.
Fourplex: A fourplex is designed to provide four homes under one roof. A shared foyer or entryway is also common in fourplexes. Fourplexes are often not permitted in residential zones.
5-Unit: A 5-unit dwelling contains five separate dwellings in the same building and shares the same characteristics as a triplex or fourplex. More commonly these would not be converted from single family homes.
6-Unit: A 6-unit dwelling contains six separate dwellings in the same building.
Advantages of Multi-Unit Residential Buildings
Financial – Owners of multi-unit residential buildings have help from tenants with paying the mortgage and general housing costs. Rental income also helps with mortgage qualification since lenders often use a large portion of this towards the loan application. And if retirement savings is part of your plan, multi-unit buildings are a great way to build up equity while using cashflow for other purposes.
Taxes – The rental portion (whether you are renting the whole building or you live on-site) can be used to gain tax benefits from things like mortgage interest, home repair, utilities, and insurance costs. Keeping accurate records and all receipts and invoices will help landlords maximize their tax benefits.
Revenue Generation – Owners can live in one unit of the residence and rent out the others to gain revenue from rental income. This set up will also help the building owner save on mortgage payments and housing costs.
Feels Like “Home” – Multi-unit residences can feel more like “home” than an apartment or condo unit because residences often include spaces like patios, yards, and garages that can make a property more comfortable and cozy to live in.
Disadvantages of Multi-Unit Residential Buildings
Landlord / Tenant Issues – Being the owner of a multi-unit residential building means you must know the ins and outs of the landlord-tenant laws and the Ontario Standard Lease form. Screening tenants is also a practice you must become very familiar with to save yourself headache and heartache. There is a risk that tenants may be frustrating and demanding, no matter how well you screen them.
Maintenance – Whether your multi-unit building has two units or four units, owners will need to take on extra duties with repairs and renovations and keep on top of the maintenance of the property so it stays in good condition.
Lower Demand – Selling your multi-unit residence could be a challenge since they are not as popular as most single family dwellings. Four, five, or six-plexes are less in demand than duplexes or triplexes.
Considerations When Buying a Multi-Unit Residential Building
The big question when considering the purchase of a multi-unit residence is do you want to be a property manager? Do you feel that you can handle being a landlord and taking on the extra responsibilities of caring for a larger property as well as any tenants who live there?
If your answer is yes then multi-unit ownership can be a profitable endeavour and well worth the effort.
Obtaining a Mortgage for a Multi-Unit Residential Building
When looking to purchase a multi-unit property, you can obtain a residential mortgage for duplexes, triplexes, and fourplexes. Anything above 4 units requires a commercial mortgage that includes higher interest rates and more criteria for qualification.
Will you live on-site or off-site? In trying to obtain a residential mortgage, you may have to live on-site and the property must be valued below $1 million if you want to apply with 10% down payment.
If you live off-site and use the property for investment purposes only, that number increases to at least 20%.
The good news is that a large portion of the future rental income can be used to help you quality for the mortgage.
Talk to a professional mortgage broker or financial advisor – they will have the information you need to make wise decisions concerning multi-unit residences.
Financial and Cashflow Considerations for a Multi-Unit Residential Building
When evaluating the feasibility of investing in a multi-unit residence, take note of the costs associated with the property and whether or not it can be a profitable part of your real estate portfolio. The big question is can it result in a positive cashflow? Some things to consider in your evaluation are principal mortgage payments, interest payments, property taxes, homeowner’s insurance, maintenance costs, utility costs and possible vacancies.
It is important to carefully weigh the advantages and disadvantages of multi-unit property ownership to see if it is realistically something you can manage, and hopefully enjoy! It can be very hard work but very rewarding to own these types of properties.
Spend some time and determine if the option is right for you and your real estate investment goals.