Quick Guide to Multi-Family Housing

Multi-family homes have much to offer to the right homebuyers. A townhouse or condo often provides an affordable housing choice in an otherwise out-of-reach neighborhood, and for buyers who want to escape the maintenance headaches of owning a single-family home a townhouse or condo can be a terrific option. In many ways, however, buying a multi-family home is more complex than buying a detached unit, and it's worth spending a little time to understand the implications - both positive and negative.

Here are 10 considerations to review before signing that contract.

Townhouse vs. Condo
As with many terms in real estate markets, decades of marketing and promotional usage have blurred the distinctions between housing types. Most often, condo is used to describe flat or apartment style units while townhouse refers to side-by-side dwellings with their own exterior entries. Terms like patio home and court home are often used to describe townhouse style units that are either marginally attached to adjacent units (often sharing only a few feet of common wall) or completely detached on very small lots.

Is the Association Viable?
A multi-family development will usually have a homeowner's association that is responsible for maintaining the community. Inquire about the association's history and financial status. Are there sufficient capital reserves for required maintenance, like replacing the roof or repainting the buildings? Is there a track record of timely maintenance and good management? Does the association carry sufficient liability insurance - $2-10 million?

Maintenance Fees
Maintenance fees can be a major factor in affordability when buying a multi-family home, so don't overlook this expense when considering your purchase. Monthly charges can easily add up to the equivalent of $20,000 to $50,000 of additional mortgage - even more for luxury communities with extensive recreational facilities, security, or other costly amenities.

Are the Fees All-Inclusive?
You may decide the maintenance fees are affordable, but do they cover everything? Make sure to determine if additional costs apply to use recreational facilities - golf, tennis, pool, fitness center. You don't want to be faced with unexpected charges after you move in.

Can You Live with the Rules?
Living in a multi-family development typically means dealing with more rules and regulations. Pets, home improvements, outdoor furniture, the right to rent your unit - all may be regulated or banned outright. While generally intended to protect the entire community, these types of restrictions can become bothersome - especially if the individuals on the association board are insensitive and difficult.

New Construction
Buying in a new development can be exciting and highly advantageous, but there are a number of considerations. What is the schedule for completing project amenities and recreational facilities? Are you prepared to live with the inconveniences of living in a construction site for an undetermined period? Resales can sometimes be a problem as well - while buying early is usually a smart move, if you need to sell soon you may find yourself competing with dozens of new units being sold by the developer.

Co-ops
Co-ops are a bit different than most forms of multi-family housing. Purchasing a co-op means buying shares in a corporation that owns the property. A co-op may have rules restricting your ability to finance the purchase (or setting maximum loan amounts) - and financing for this type of housing may be more difficult to arrange. The co-op board often has the right to approve or reject a potential buyer.

Check the Tenant to Owner Ratio
It's probably a good idea to ask about the percentage of residents who are renting rather than buying. A high ration of owner-occupants is considered a positive factor for a community, and some lenders may hesitate to provide mortgages in projects with too many renters.

Get the Convenience You Want
You're probably expecting your multi-family home to be more convenient than a single-family, so make sure this is the case before signing the contract. Does the association handle exterior maintenance? Is the community conveniently located - near shopping, entertainment, and major highways?

Consider the Density
Many people opt for multi-family housing to escape yard work and maintenance headaches - only to find that the density and lack of privacy is bothersome. Is the project densely built or are units well spaced? Will your unit provide you with a comfortable level of privacy?