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Ben Matityahu
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Ben Matityahu
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Difference Between Townhouses Multifamily Vs Apartment building

Ben Matityahu
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Posted May 10 2023, 19:50

Hey Guys, 

What is the difference between Townhouses Multifamily Vs Apartment building ? 

1. Are they getting the same evaluation metrics (NOI) ? or different Metrics ?

2. what check list should be asked when first walking the property ? 

3. Any things to watch out for ? 

little about the property 69 units (1 module of 3/2.5 and 1 
car garage 1600sqf+ approximately ) 

4. Is it enough to qualify for Dscr loan product  ? 

5. Are there any Multifamily Mentor groups / Meetups I can attend ? 

Thank you 

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Allan Smith
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Replied May 10 2023, 22:04

Townhouses are side by side and never stacked on top of each other. Also, multifamily Apts are owned by the same company whereas townhomes have different owners.

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Replied May 11 2023, 04:12

@Ben Matityahu

Not enough info as MF can be low, mid or high rise. Once you get into high rise it’s a different animal for codes because of stair pressurization and life safety systems

Pros and cons with each as townhomes can have higher exterior costs because there is more exterior…

You cannot compare one type to the other as it’s very dependent on the asset itself.

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Ben Matityahu
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Ben Matityahu
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Replied May 11 2023, 04:15

Thank you for replaying. 

The talked about property is a townhouse complex ... so its owned by 1 company same as an apartment building. 

My questions are few pointer references in regards to how to evaluate this property and what to look for ? 

Thank you again for answering  

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Replied May 11 2023, 06:24

@Ben Matityahu Hi Ben, you would analyze this property the same way that you would analyze a typical apartment project.

I can send you an intake sheet to populate and send back to me and I’ll send you a full pro forma report.

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Replied May 11 2023, 07:12

Hi Ben,

I used to work in commercial real estate and we would consider townhomes (or single family homes) as multi family when the community was built exclusively as a rental community and the lot is one parcel vs multiple parcels for each home. When underwriting these deals we would use similar metrics (NOI, cap rate, etc) as evaluating a traditional commercial apartment building because the homes were managed the same as our large apartment buildings.

It was often hard to find comps for these types of projects because build to rent communities only started popping up in the last few years.

Anything over 5 units is commercial real estate and commercial products can be used. However, there are DSCR products that can be used on smaller units and single family homes with some lenders.

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Replied May 12 2023, 07:01

@Ben Matityahu, at a high level, you are buying an apartment community, it was just constructed in a different style. Based on your feedback, I am assuming this is zoned as apartments, it does not have an HOA, the townhomes are NOT individually parceled, etc.

As such, you are buying an apartment community.  There are many apartments out there that are built like this, or have a combination of "townhome" and flat style units.

1) Yes they get the same metrics.  In my experience, townhomes are typically in stronger demand, since they standalone entrances, attached garages, etc. and therefore get more rent, but metrics are the same.

2) Have you ever bought a 70ish unit apartment building?  No difference.

3) No difference.  Inspect them all and all systems, like you would any other apartment.  As noted, you have more "surface area" per unit, so your exterior budget will be higher per door, typically.

4) Yes, and clearly I don't know these units, but can't imagine you are looking at less than $10mm total purchase price (about $150k/dr). While this isn't a "huge" loan in the grand scheme of commercial real estate, I would be prepared to be able to show a net worth equal to the loan balance and liquid assets equal to 10% of the loan balance. Assuming a 75% LTV, you would need $750k liquid (not invested in the asset) and $7.5mm of net worth. Different lenders will have different standards, but these are fairly common.

5) Yes. Meetup.com, and google will help you immensely here.

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Replied May 16 2023, 13:26

Are you going to build or make Money. 

it doesn't matter if they are 10 apartments or 10 townhomes.

Is about the numbers rent - expenses= Profit 

Downpayment and loan to buy them. 

Keep researching but go for the income ... the knowledge comes after.

local meet-up groups great source of knowledge and biggerpocket the best.

Luis

Good luck