Are Condos Considered Multi-Family Properties?

Condos and multi-family properties are often confused because both involve multiple units within a single building. However, key differences in ownership structure, financing, and legal classification set them apart. Understanding these distinctions is important for buyers and investors considering real estate opportunities.

While condos share some characteristics with multi-family buildings, their unique attributes impact taxation, financing, and association rules.

Physical Layout

Condos consist of individually owned units within a larger building or community. These units can be in high-rise buildings, townhome-style developments, or detached structures within a planned community. Shared spaces such as hallways, lobbies, and recreational areas are maintained collectively, typically through a homeowners’ association (HOA).

Multi-family properties, by contrast, are owned as a single entity, with multiple residential units under one ownership. These buildings range from duplexes and triplexes to large apartment complexes. Unlike condos, where each unit has a distinct owner, multi-family buildings are typically rented out by a single landlord or investment group. Landlords, rather than an HOA, handle maintenance and common area management.

Condos attract buyers looking for homeownership with fewer maintenance responsibilities, while multi-family properties appeal to investors seeking rental income. Condos frequently include shared amenities such as pools, gyms, and clubhouses, whereas multi-family buildings focus on maximizing rental units.

Legal Classification

Condos are legally classified as individual real estate units, each with its own deed and title. Owners hold direct ownership of their unit while sharing an interest in common areas, governed by a condominium declaration and bylaws. These documents outline ownership rights, usage restrictions, and maintenance obligations.

Multi-family properties, on the other hand, are considered a single real estate asset, even though they contain multiple units. Ownership remains under one entity, such as a private investor, corporation, or real estate trust. As a result, multi-family buildings are subject to landlord-tenant laws rather than HOA regulations. Rental agreements, eviction procedures, and tenant rights are governed by state and local housing laws, which vary by jurisdiction.

Zoning laws further distinguish these property types. Condos are typically developed in areas zoned for residential use, often within planned communities or mixed-use developments. Multi-family properties may be subject to different zoning requirements dictating density limits, parking provisions, and commercial allowances. Some cities impose rent control measures or occupancy restrictions on multi-family buildings, which do not apply to individually owned condo units.

Financing Implications

Condos are usually purchased with residential mortgages, similar to single-family homes. Lenders assess the buyer’s creditworthiness but also evaluate the financial health of the condominium association. High delinquency rates on dues, inadequate reserves, or pending litigation can make lenders hesitant to approve loans. Fannie Mae and Freddie Mac impose specific requirements for condo financing, such as limiting the percentage of investor-owned units.

Multi-family properties with five or more units are typically financed with commercial loans. These loans are underwritten based on the property’s income-generating potential rather than just the borrower’s financial situation. Lenders analyze the debt service coverage ratio (DSCR), which measures net operating income against debt obligations, to determine if the property can sustain its mortgage payments. Loan terms for multi-family buildings often include shorter amortization periods, prepayment penalties, and higher interest rates. Government-backed options, such as FHA multifamily loans or Fannie Mae’s DUS program, offer alternative financing routes with more favorable terms under specific conditions.

Tax Treatment

The tax implications of owning a condo differ from those of a multi-family property due to variations in ownership structure and income generation. Condo owners typically face tax treatment similar to single-family homeowners. Property taxes are assessed on individual units, and owners can deduct mortgage interest and property taxes on their federal returns if they itemize deductions, subject to the $10,000 cap on state and local tax deductions imposed by the Tax Cuts and Jobs Act of 2017. If a condo is used as a rental, the owner can also deduct depreciation over 27.5 years under the Modified Accelerated Cost Recovery System (MACRS), along with expenses such as maintenance, insurance, and association fees.

Multi-family property owners can depreciate the entire building’s value—excluding land—over the same 27.5-year period but with larger deductions due to the higher acquisition cost. Cost segregation studies can accelerate depreciation by identifying components eligible for shorter recovery periods, such as appliances or flooring. Rental income is subject to ordinary income tax rates, but owners can offset taxable income through deductions for mortgage interest, repairs, and operating costs. Passive activity loss rules under the Internal Revenue Code may limit the ability to deduct losses unless the taxpayer qualifies as a real estate professional.

Condominium Associations

Condominium associations, commonly referred to as homeowners’ associations (HOAs), oversee shared spaces, enforce community rules, and maintain financial reserves for repairs and improvements. These organizations operate under bylaws and covenants, conditions, and restrictions (CC&Rs), which dictate policies on pets, exterior modifications, and other community rules. The association is funded through mandatory dues paid by unit owners, with fees varying based on amenities, maintenance costs, and the size of the development.

Financial management within condominium associations is a key factor for both buyers and lenders. Associations must maintain adequate reserve funds to cover major expenses such as roof replacements, elevator repairs, and structural maintenance. Insufficient reserves can lead to special assessments, where owners must contribute additional funds to cover unexpected costs. Lenders scrutinize these financials when approving mortgages, as poorly managed associations pose risks to property values. Additionally, disputes over association governance can impact resale potential, as restrictive policies or high fees may deter prospective buyers.

Multi-family properties do not have these collective governance structures, as a single owner or management company is responsible for all operational and financial decisions.