[Beginner's Guide to Renting] Multi-family? Multi-unit? ... Differences You Need to Know to Protect Your Precious Deposit

Multi-family Building with One Registry vs Multi-unit Building with Separate Registries per Unit
When Moving into a Multi-family Building, Carefully Check Mortgages, Deposits, and Arrears to Protect Your Deposit

[Asia Economy Reporter Lee Chun-hee] When you become a real estate reporter, your friends sometimes suddenly message you on KakaoTalk. "How do I apply for a housing subscription?" "What does first priority mean?" For the 2030 'Burin-i (real estate + child)' who only have subscription savings accounts created by their parents when they were young, I am trying to create a guide.

In Korea, when people think of a 'house,' they usually imagine an apartment. However, out of every 10 houses, 4 are still not apartments but multi-family or multi-unit houses, or detached houses. Multi-family or multi-unit houses are often buildings called '00-bil,' which are mostly one-room or two-room types. At first glance, they may seem similar, but legally, there is a significant difference.

You may have heard stories where a friend suddenly finds out that the one-room building they live in has gone to auction, or the landlord disappeared and they cannot get their deposit back. This is exactly when the critical difference between multi-unit and multi-family houses arises.

As mentioned earlier, multi-unit and multi-family houses look similar externally. Legally, multi-family houses have floors used as residences up to three stories, and multi-unit houses up to four stories, but some multi-unit houses are also built with three or fewer floors. Both are subject to the same regulations such as a floor area of 660㎡ or less and a maximum of 19 households. Also, the interior spaces are separated by unit numbers similarly.

However, in terms of registration, multi-family houses are not registered separately. That is, although units are physically separated by unit numbers, they are not individually registered. On the other hand, multi-unit houses have separate registries for each unit, such as registry for unit 101, registry for unit 102, and so on. Therefore, unlike multi-unit houses where ownership and rights can be clearly understood, it is difficult to ascertain rights in multi-family houses.

The biggest issue is that the procedure for subscribing to the 'Jeonse Deposit Return Guarantee Insurance'?which can be urgently sought when at risk of losing the deposit?differs. According to the Housing and Urban Guarantee Corporation (HUG) insurance standards, multi-family houses without separate registration require submission of the deposit amount for each unit, monthly rent deposit, contract date and period, and tenant information. In practice, without the landlord’s cooperation, it is difficult to obtain insurance. Conversely, multi-unit houses, which are 'collective buildings' with separate registrations like apartments, can easily get insurance.

Therefore, when moving into a multi-family house, you need to be more meticulous. When signing a lease for a multi-family house, you must first carefully check the market price of the house, the loan status, and the deposits of tenants already living there. When a house goes to auction, the rights to receive distributions vary according to different priorities, and tenants’ priority is determined based on the date of moving-in registration and the date of the fixed date certificate.

If the market price of the house is about 1 billion KRW, the landlord has borrowed about 100 million KRW secured by the house, and the total deposits amount to about 200 million KRW, it can be considered safe to move in. However, if the loan is already about 500 million KRW and deposits total about 500 million KRW, tenants who move in later may not get any deposit back and could be evicted. Generally, if the existing mortgage and deposits exceed 70% of the market price, it may be difficult to get the deposit back later.

This information must be thoroughly explained through a licensed real estate agent at the time of contract. Real estate agents are required by Supreme Court precedents to faithfully explain these matters to tenants, and if they fail to do so, they must compensate for damages.

To be even more thorough, you should also check the landlord’s tax payment status. If there are already overdue taxes, these also take precedence over new tenants’ deposits in repayment. Some landlords or agents may find it bothersome to provide tax payment status, but if that is the case, you probably should not move in.

There are also differences between multi-family and multi-unit houses in investment. Mr. A and Mr. B each own one multi-family house (10 units) and one multi-unit house (10 households), respectively. However, since a multi-family house is classified as one house, Mr. A is considered a single homeowner, but Mr. B, who owns each unit separately, is considered a multi-homeowner with 10 houses. Therefore, differences arise in capital gains tax and rental income tax.