When most people think of the American Dream, they imagine a beautiful single-family home with a yard in a nice neighborhood. That dream, however, is becoming increasingly unattainable, making alternative options like living in a multi-family home more desirable.
Your own homebuying journey comes down to personal preference and financial capability, but it’s important to understand the distinctions between single- and multi-family homes in today’s market.
What is a single-family home?
A single-family home is likely what you first think of when you imagine a house. It’s a freestanding residential unit designed and built for one family. Not only that, it exists on an individually owned lot or parcel that’s separate from other properties in the area.
That last part is an important distinction when it comes to single-family homes. Even if the underlying land is fractional, a home on its own section of property is still considered single-family by the United States Census Bureau. For instance, a townhouse in the city may be attached to other homes, but it’s still a single piece of property, making it a single-family home.
Some of the types and styles of single-family homes include:
- Townhouse
- Twin home
- Ranch
- Bungalow
- Split-level
- Manufactured
What is a multi-family home?
As the name suggests, a multi-family home is a residential dwelling that includes more than one living unit on the same property. Multi-family homes have separate entrances to each unit and have their own living facilities and utilities. Each unit has its own address.
In a multi-family home, each resident can control their own utilities and pay their own bills despite sharing interior walls, ceilings, and floors. A multi-family home may have common facilities — like a basem*nt or attic, elevators or stairs, a garage — or amenities, like a pool, fitness facility, or lounge.
Types of multi-family properties include:
- Duplexes, triplexes, and fourplexes
- Apartment buildings
- Condos
- Co-ops
- Retirement communities
- Assisted living centers and nursing homes
Differences between single-family and multi-family homes
A few obvious differences probably come to mind, but let’s cover the primary distinctions between single-family and multi-family homes.
| Feature | Single-family | Multi-family |
|---|---|---|
| Property | Detached on its own section of property. | Shared walls, ceilings, and floors in a single building. |
| Occupancy | One dwelling and set of tenants. | Multiple dwellings with different sets of tenants. |
| Utilities | Managed by a single property owner. | Shared central system, paid for by individual tenants. |
Privacy
A townhouse may have shared walls with another residence but generally, single-family homes have significantly more privacy than multi-family homes. There are no shared stairs or entrances to other units and all utilities are created for and managed by the single property. Most of the time, you can interact or not interact with neighbors at your leisure and you won’t have to deal with strange or annoying behaviors of residents in other units.
Occupancy
Usually, property owners of single-family homes live in the property. Multi-family homes are often owned and managed by a landlord who doesn’t live there, but not always. The owner of a multi-family home may also choose to live in one unit while renting out others as a source of income. Multi-family properties also may include commercial space in the same structure.
The occupancy of single-family homes are much more straightforward.
Utilities and facilities
In a single-family-home, the systems and utilities that make the home habitable are independent of other properties. The electrical, plumbing, and HVAC systems all function within a single property and are paid for by a single property owner.
In a multi-family home, these utilities and living facilities are parceled between units so that each tenant can control them for their space. Each unit uses the same core systems of the building, but has individual meters so that each tenant pays for what they alone use.
Legal distinctions
While single-family homes are always considered residential real estate, multi-family homes may be residential or commercial real estate. Multi-family homes with four or fewer units are considered residential property, while multi-family homes with five or more units are commercial property. These are important distinctions for property taxes, financing, and zoning.
Many cities restrict commercial properties, making it more difficult to build or acquire multi-family properties. However, if you want to build an accessory dwelling unit (ADU) or rent a single-family home as an income source, you may also encounter regulatory issues.
Financing
Buying a single unit within a multi-family home is similar to buying a single-family home, so you can use a conventional loan to finance the purchase.
If you’re buying an entire multi-family property, however, things get more complicated. You can still use a conventional loan to purchase a multi-family property with four or fewer units, but you have to use a commercial loan to buy a property with more than four units. Commercial mortgages have different terms and rates than residential mortgages.
One trick that many multi-family property owners use is to live in one unit in a home with fewer than five units and finance it as an owner-occupied single-family home. This type of financing can grant borrowers more favorable terms and interest rates, while still letting them earn rental income.
Pros and cons of single-family homes
Now that you know the differences between single-family and multi-family homes, let’s evaluate the pros and cons.
Pros
- Privacy: Generally, single-family homes offer more privacy than multi-family homes and have more space on the property. The average single-family home is 2,500 square feet, while the typical multi-family housing unit is just 1,076 square feet.
- Freedom to customize: With no homeowners association (HOA) or building management, you’re free to make whatever changes you want to a single-family home, provided they’re in compliance with municipal rules and regulations.
- Easier investment: For investors, it’s easier to buy a single-family home and rent it out as an income source than it is to buy a full multi-family property. It’s also significantly easier to manage as a landlord if you’re just working with one set of tenants in a single dwelling rather than multiple.
- Lower costs: While a single-family home’s maintenance and utility costs are likely less than a single unit in a multi-family home, they’re far less than what you’d pay if you own an entire multi-family property.
- Home-value appreciation: Single-family homes tend to appreciate in value faster than multi-family homes due to higher demand for single-family homes.
Cons
- Price: A single-family home is usually more expensive than an individual unit in a multi-family property. That said, you may get more bang for your buck if you buy an entire multi-family home.
- Less rental income potential: It’s harder to turn a profit on a single-family home investment since you’re only getting rent from one unit. Similarly, tenant vacancies hit a lot harder with single-family homes since it’s the only source of income for the property.
Pros and cons of multi-family homes
So, we’ve discussed single-family homes. What are the pros and cons of multi-family homes?
Pros
- Price: An individual unit in a multi-family home likely costs less than a comparable single-family home.
- Property management: Even when you own a unit in a multi-family home, you’re not responsible for certain property upkeep and may benefit from common amenities or services like a pool and snow removal.
- Investment potential: Multi-family homes have significantly more opportunity to generate rental income. You could even get to a point where you’re living practically without a mortgage thanks to the cost offsetting potential of renting out additional units.
- Flexibility: Multi-family homes allow the possibility of living in a multigenerational home or providing housing for your whole family. You can also always choose to knock down walls and turn the multi-family property into a single-family home.
Cons
Less privacy: Multi-family units tend to be smaller and because they share walls and common areas with other units, it’s more likely you’ll run into neighbors and hear what’s going on in other units.
