Multi-Family Homes

A multi-family home is a single building with two or more separate residential units, typically a two-family or three-family house or a small apartment building under one owner. Buyers purchase these buildings either to live in one unit while renting the others, or purely as rental property. If the building already has tenants, the purchase carries more with it than the walls and the lot.

Fisher Stone represents buyers, sellers, and owners of two-family, three-family, and small apartment buildings across New York City. A licensed New York attorney handles your purchase, sale, or refinance from the first contract review through closing, working directly with you by call, email, or text, with no call center and no handoffs. The closing is a flat fee, quoted up front, after a short, free consultation.

How a multi-family purchase differs from a single-family home

A multi-family building is financed and reviewed differently than a single-family house, depending on the number of units and whether tenants already occupy them. An owner living in one unit of a two-family or three-family house can often use financing close to a standard residential loan. A small apartment building with no owner-occupant is usually financed as commercial or multifamily property, based on rental income. A single-family home is typically vacant at closing, while a multi-family building may already have tenants in place, changing what your attorney reviews before you sign.

For a single-family house, see our single-family home page, or our condominium page if you are buying one unit within a larger building. A building that combines residential units with ground-floor retail or commercial space is a mixed-use property, covered separately.

Buying a building means buying its tenancies

When a multi-family building has existing tenants, a sale does not end their leases. The tenants stay in place on the same terms, and the buyer takes over as landlord at closing under each existing lease. This holds whether a lease has a year left to run or has become month to month, and for a rent-stabilized or rent-controlled tenancy as much as a market-rate one. A buyer who wants vacant possession of an occupied unit has to account for the existing lease and plan the timing with an attorney, since the sale does not change a tenant’s right to remain.

Due diligence on leases, rent rolls, and security deposits

The core closing process, contract negotiation, title review, lender coordination, and attendance at closing, is the same as any residential real estate closing. What differs is the extra review: the leases, the rent roll, and the deposits tied to each occupied unit. Due diligence has to go beyond the seller’s description of income. Before signing, and again before closing, your attorney should review the underlying documents, including:

• The signed lease for every unit, including amendments or renewals
• A current rent roll showing rent charged and payment history
• Records of every security deposit held, including the amount and where it is held
• A record of any rent arrears, so you know which tenants are behind
• The rent registration history for the building, regulated and unregulated units alike

A rent roll alone tells you what the seller says the building earns. The leases, deposit records, and arrears history tell you whether that income is reliable. Security deposits need particular attention, since New York treats a deposit as the tenant’s money held in trust, not the landlord’s. Deposits must be transferred to the buyer at closing and held properly afterward. A short or unaccounted-for deposit becomes the new owner’s problem to resolve with the tenant, not the seller’s.

Rent stabilization and rent control

Some units in New York City multi-family buildings are rent stabilized or rent controlled, and confirming this before you buy is one of the most important steps in the purchase. A regulated tenancy limits how much rent can be increased and how the tenancy can be ended, and those limits attach to the unit itself and its history, not to what the new owner intends to do with it. Buying a building does not change a unit’s regulated status, and a new owner cannot deregulate a unit or raise its rent to market level at closing.

Whether a unit is regulated, and what it can lawfully charge, depends on the building and that unit’s history, not on the building’s size or type, so it is not something to assume either way. Before signing a contract, your attorney should check the building’s rent registration history with the state agency that oversees rent regulation, rather than relying on what a listing describes. Getting this wrong, by overpaying for income the building cannot lawfully produce, or inheriting a prior compliance problem, is one of the more expensive mistakes in this part of the market.

Certificate of occupancy and how the building is used

Every building has a certificate of occupancy on file with the New York City Department of Buildings, describing how many units it may legally have and how it may be used. That description does not always match how the building is actually laid out. A common issue is an extra unit that was never legalized, such as a finished basement or attic converted into an apartment without approval.

An illegal unit affects more than the room count. A lender may decline to count its rent as income when underwriting your loan. Insurance may not respond the way you expect to a loss connected to a unit the building is not permitted to have. Collecting rent can also become difficult, since a court can consider whether a unit was legally allowed to be rented as housing before enforcing a landlord’s right to collect.

Open violations and permits

Your attorney should also check the building for open violations from the Department of Buildings or the Department of Housing Preservation and Development, and for any open permits reflecting unfinished work. An open violation can affect financing and can become the new owner’s responsibility if not resolved as part of the sale. An open permit usually means a prior job was never signed off, raising questions about whether the work was done to code.

Owner-occupancy, financing, and selling a tenanted building

Financing when you plan to live in the building

Many buyers of a two-family or three-family house plan to live in one unit and rent the others. Occupying a unit yourself can open up owner-occupant financing, which can offer better terms than an investment loan. If the unit you intend to occupy already has a tenant, plan the timing with your attorney and lender, since the purchase itself does not give you possession of an occupied unit. A small apartment building with no owner-occupant is instead financed as commercial or multifamily property, based on income. For a purely rental purchase, see our investors page for LLC ownership alongside a multi-family purchase.

What changes when you are selling

Selling a tenanted multi-family building takes more preparation than selling a vacant home. A seller should be ready to provide the actual leases, a current rent roll, security deposit records, and the rent registration history, since the buyer’s attorney and lender will expect to review them before closing. Security deposits need to be accounted for and transferred at closing, and any rent arrears should be disclosed rather than left for the buyer to discover later. Gathering these records early generally shortens the buyer’s due diligence.