commercial vs a multi family in Rhode Island?

[Tanya Andrade]

What is the difference between commercial and general multi family housing in Rhode Island? I had originally heard that anything with 4 or under would be considered multi family and 5 and over would be considered commercial. I am now doubting this information. Does anyone have any knowledge they can share?

[Anthony Thompson]

@Tanya Andrade it's a tricky issue because it depends on context. Cities and towns sometimes use "commercial" for not only store fronts, industrial, etc. but also a certain # of residential units and higher.

Real estate agents and appraisers usually reserve "commercial" for office/retail/industrial, basically not residential as we normally think of it.

But "commercial" in the mortgage space means a certain kind of loan (e.g., adjusting every 5 years, maybe a shorter amortization and/or balloon payment), and the mortgage may or may not be secured by a residential property.

So there's unfortunately no real standard for the terms. You're right though, in general usage among real estate investors, usually "commercial" applies to 5+ residential units as well as office/retail/industrial, largely because it's usually a commercial mortgage and that's when different rules start to apply for cities and towns as far as fire coding, trash collection etc.

(Even that's not across the board though, for example some towns make you do a private waste collection service aka dumpster when you have only 4 units, and you've probably heard about the big difference in fire coding for 3-families vs. 4-families.)

Loosely speaking, "multi-family" is a term usually applied to anything with more than one unit (i.e., residential but not a single family), and especially for three or more units. Talking with other investors, we regularly use multi-family or MF to refer to 3+ units, such as "I'm trying to consolidate my portfolio into larger multis" as a way of saying "I own a lot of 2-3 families and would like to trade them in for a smaller number of 6+ unit buildings"

You do have to go by context though. For example if you've been talking to someone about multi-family rental real estate and they say, "well I'm also looking into some commercial real estate opportunities," chances are excellent they mean retail/office/industrial and not 5+ residential units. But if you were talking about the maximum # of FHA mortgages with multi-family and they said, "we'll I'm also thinking of looking into some commercial options," they probably mean they're investigating whether they can acquire more units by going with commercial mortgages.

Language is hard, and the complexity of real estate doesn't help, unfortunately. Sorry there wasn't a clearer answer on this one (at last as far as I know).