Major Distinction Between Residential and Commercial Multifamily Housing?
The world in the present day can be a bit vague. Investing in multifamily properties is now very popular these days. Regardless, there is a lot of misunderstanding between residential and commercial multifamily housing. Some people can’t spot residential multifamily housing from commercial multifamily housing.
A multifamily housing that consists of about 2 – 4 units is a residential family housing. Anything with 5 or more units is commercial multifamily housing. This means it is more than multifamily building designs alone. It is necessary to clarify what anyone means when they talk about multifamily properties.
Commercial multifamily building designs are a different beast. Multifamily housing with about 2 – 4 units is also single-family housing. For expert opinions on multifamily building design or properties, you can contact professionals. S3DA design firm has experienced professionals for your multifamily building design needs.
Major Distinctions You Should Know Between Residential and Commercial Multifamily Housing
Property Valuation:
This is a major difference between residential multifamily housing and residential multifamily housing. Comparables come into place when it’s time to get the value of residential multifamily buildings. They look at the value of similar properties nearby and use them to decide their value.
For commercial multifamily buildings, the procedure is different. There is a formula used to get the valuation of the building compared to its residential counterpart. The net Operating Income divided by the Cap rate gives the value of the building.
Net operating income represents the property’s income without considering any mortgage payment. The cap rate here represents the market factor. Any broker in the neighboring area can tell you more about the market cap rate for any property.
The formula is quite powerful, especially for those operating multifamily properties. An increase in the net operating income of the building will improve its valuation. This is on the basis that the market stays constant.
Many operators improve their properties to enable them to make gains on rents. It also increases their net operating income. All thanks to the commercial multifamily building valuation method.
Loans:
The type of loans you can get is another huge distinction between these two multifamily properties. Residential multifamily loans are given to individuals who own the property. Unlike residential multifamily buildings, LLCs or entities collect commercial building loans.
In some cases, the loans for commercial multifamily buildings are non-recourse. This means in cases of default, other assets are safe. The bank has no claim over other assets that weren’t used as collateral.
Residential loans can sometimes be recourse loans. It means the bank can come after the borrower’s other assets in cases of default. Commercial multifamily loans have a 3, 5, 7, or 10-year term while residential loans have 15 or 30 years loan terms.
For more on loans for multifamily properties, contact S3DA design firm experts.
Syndications:
No regulation prevents syndications in residential multifamily spaces. Still, it’s very rare to see them. They are more common in commercial multifamily spaces. Especially when it goes above 30 units.
A major reason is that it’s very expensive for an individual to buy a building of 30 units or more. In commercial multifamily housing, getting a mortgage for an LLC is quite prevalent. This makes syndication easier compared to residential multifamily housing.
Buying and Selling Procedures:
When it involves residential properties, a real estate agent or realtor helps the buyers with their acquisition. They help the buyer with the negotiation process and also the necessary paperwork. For commercial multifamily housing, the only person assisting the buyer is their lawyer. The seller has his lawyer assisting him and also the broker responsible for listing the property.
Residential multifamily properties are often listed on various sites. Residential buyers don’t need to spend time building any relationship with the seller’s agent. They can find any property they want on the internet.
Commercial multifamily housing buyers can’t live like that. It is not common to list most of these properties on the internet. They need to build relationships with as many brokers as they can.
Final Thoughts:
There are several differences between commercial and residential multifamily housing. Both multifamily housing designs have their pros and cons but regardless, have their difference. As a realtor, developer, or one interested in any of them, you need to be aware of these things.
If you need more information on multifamily housing designs you can always contact us for expert opinion. At S3DA design firm, we have the most experienced professionals for your real estate needs.