Multifamily housing is a type of real estate that is able to accommodate more than one household. This means that more than one individual or family can live within these premises, so who exactly owns the multifamily property? Is it the people accommodated at the building or an outside party, such as real estate investors? In this blog, we will be discussing who typically owns multifamily housing and what that means for your living space.
What is Multifamily Housing?
Multifamily properties can be defined as a building or structure that holds more than one unit. But this still does not encompass all the different types of multifamily properties. This is because a multifamily property can be considered either commercial real estate or residential real estate.
In multifamily real estate, it is considered a residential property when it has more than one unit but less than four (i.e. Duplexes). On the other hand, if the structure has five units or more (i.e. Apartment Complexes), it is generally considered to be commercial real estate. This is an important distinction to keep in mind as it will determine who owns these multifamily real estate properties.
Purchasing Commercial Vs Residential Properties
In general, the average person will have a harder time purchasing commercial properties compared to residential properties. There are a few reasons why this is the case, but the two main reasons are:
- Purchase price – Commercial real estate is typically much more expensive than residential real estate. This is mainly because commercial properties are usually larger in size and they tend to be located in more desirable areas.
- Lending requirements – Financing the purchase is going to be a problem. Lenders are more hesitant to lend money for commercial property purchases when compared to residential purchases. Commercial real estate is more risky and therefore difficult to value, causing lenders to think twice before shelling out money.
This can be a good indicator as to who owns a multifamily property. If the property has more than 5 units, then we can place a safe bet that the owners are real estate investors, private firms, or government entities.
Who Can Own a Multifamily Property?
As long as an individual, company, or entity is able to procure the necessary funds and ensure all legal transactions are taken care of, anyone can own a multifamily property. There are no restrictions in place to prevent someone from purchasing a property (aside from local regulations, such as purchasing a property on restricted land).
1. Individual Investors
There are many multifamily housing units that are owned by individual investors. These purchases are made by those who see the potential for long-term passive income. Some examples include new landlords, real estate enthusiasts, or retirees.
2. Individuals and Families
Investors are not the only people who can purchase multifamily homes. Individuals can purchase multifamily property for their personal use, such as for their extended families. It doesn’t need to be considered a “business” and can be used for residential purposes only.
3. Small-scale Investors
For larger investments, there are small-scale investment groups or partnerships that aim to pool their resources together to purchase and manage multifamily properties. Through this approach, investors are able to share the risks while reaping the benefits of multifamily housing through rental income.
4. Real Estate Companies
Established real estate companies tend to have many multifamily properties in their portfolios. These companies are made up of individuals who leverage their industry expertise to acquire and manage properties on behalf of investors. These generally operate on a much larger scale than small-scale investors.
5. Private Equity Firms
Private equity firms are investment companies that raise money through investors to invest in other private companies. As such, one method of investment could specialize in acquiring and managing multifamily properties as part of their investment strategies. Owing to their diverse expertise and vast resources, they can undertake large-scale projects.
6. Nonprofit Organizations
Multifamily housing has been used for a long time to help with social issues. There are certain nonprofit organizations that own and operate multifamily housing for the sole purpose of providing affordable housing to marginalized or poorer populations. The aim of these projects is to help improve the community and reduce homelessness. These are not focused on making profits.
7. Government Entities
Similarly to non-profit organizations, local, state, and federal government agencies may own multifamily housing as well. These are generally a part of public housing initiatives or affordable housing programs aimed at addressing housing needs. Anyone who fits within their criteria will be given housing, for example, people with low incomes, seniors, and people with disabilities. While this housing is not going to be 100% free, it will be provided at a rate that they can afford.
8. Universities and Institutions
There are some universities and colleges that purchase their own multifamily properties to be used for student or faculty housing. Students are given short-term leases, giving them access to a unit for the time they spend at the college. While these units are not provided for free, they are generally low-cost for students and provide a great option for those who want to remain within campus grounds.
Multifamily properties can be owned by anybody. It isn’t only restricted to real estate investors or large companies. The property owners are responsible for the acquisition and management of each multifamily property, and these properties can be used for either residential or commercial purposes. As an investor, multifamily housing is a great market to invest in and has the potential for long-term profitability.