Investing in Small Multifamily Properties: The Goldilocks Investment

Small multi-family properties can be great investments because they combine some of the best features of apartments and single-family homes into a balanced investment that can generate strong cash flow, diversified income, and scalability, while remaining affordable and easy to finance.

This chart demonstrates why they are the “Goldilocks” of rental properties:




Single House

Small Multi-family

Purchase Price

Very High



Cash Flow

Very High



Ease of Financing

Very Low



Low Money
Down Options

Very Few



Vacancy/Non-Payment Risk





Very High



Centralized Maintenance

Very High




Very High



Tax Benefits







Low or Moderate

Intimidation Factor

Very High



You can see by the chart how small multi-families can strike the perfect balance along some of the key dimensions used in evaluating a rental property.

To avoid any confusion, when I talk about small multi-family properties, I am referring to duplexes, triplexes, and quadplexes (sometimes called fourplexes).

With that said, let’s go into each of the reasons why the small multi-family is such a compelling rental investment.

This post may contain affiliate links.  If you click on a link and complete a transaction, I may make a small commission at no extra cost to you.

Purchase Price

Obviously, price matters.  In fact, it might be the biggest factor in whether you buy a given rental investment.

One of the major drawbacks of apartment investing is the high purchase price.  For a decent-sized apartment you are probably talking at least a million dollars (depending on area and condition of course).  Source:

Don’t get me wrong, if you’ve got the money and the skills needed to successfully manage an apartment investment, they can be incredibly profitable investments.

Related Topic:  I wrote a full article on apartment investing, which showcases their incredible investment potential, while highlighting some of the biggest risks you need to consider.  Definitely worth a read if you are interested in this type of investing.

But compare that $1 million price tag with a starter home, which in 2019 had an average price of $215,000.  

That difference in price is enough to rule out apartments for most beginner investors (and even more experienced ones).

But a small multi-family may fit the bill perfectly when it comes to price.  Yes, it can be a bit more expensive than a normal house, but nowhere near as pricey as an apartment.  

According to reonomy (a leading commercial real estate insight provider), the average duplex selling price was $278,718. 

So for just a bit more money, you can get two rent checks instead of one.  As you can imagine, this benefit gets better and better if you buy triplexes and quadplexes.  

Cash Flow

Cash flow is income minus expenses.  In other words, it’s how much of the rental income you can pocket at the end of each month after you have paid all expenses.  

This is another really important factor for rental property investors. 

In the cash flow pecking order, single houses are at the bottom because there is only one rent check coming in per month.  Apartments, on the other hand, are hard to beat since they have rent coming in from many renters each month.

But a small-multifamily fits nicely in the middle.  You can still get superior cash flow over a single house, without breaking the bank.  You can further maximize this cash flow advantage by buying a quadplex in a good location.

Having four rent checks and one mortgage seems like a pretty solid formula for making money.  

House Hacking

Speaking of cash flow, there is an awesome strategy that many investors use with small multi-family properties to take full advantage of the strong cash flow from these properties.  It is called “house hacking.”

House hacking is a real estate investment strategy where the investor buys a small multi-family property (normally 2-4 units), lives in one of the units, and rents out the others.  The rent from house hacking can allow the investor to live in the property for free or at a greatly reduced cost.  In some cases, the investor may house hack their way to a profit each month.

Using this technique, not only do you get to own an investment property that will appreciate and have all of the benefits that owning real estate provides, you get to live in your place for free (or very cheaply) and maybe pocket some extra money as a bonus. 

House hacking is also amazing because you can take advantage of some super low down payment options.  More on that later.

Bonus Tip:  Another option you may want to look at is using your small multifamily as an Airbnb rental.  Many local governments are cracking down on Airbnb use if the building is not occupied by the owner.  But house hacking may solve that because you live in the building.  

If you Airbnb, your profits could be much higher than just a traditional rental arrangement if your area has a vibrant Airbnb market.

How can you tell if you have a great market for Airbnb?

One way is through Mashvisor.  They’ve got some great tools designed specifically for this, including an Airbnb profit calculator that gives the estimated Airbnb occupancy rate, projected rental income and projected cash flow for your property.  

If interested, you can use promo code AFF15 for a 7-day free trial of MashvisorIn addition you get a 15% discount forever on subscriptions to any Mashvisor plan.  

Click below to take advantage of this offer. 

Ease of Financing

A big obstacle to apartment investing is the financing process.  That’s because if the building has more than 5 units, it is considered commercial real estate rather than residential real estate and lenders have much tougher requirements for commercial real estate.  

The apartment itself must meet strict requirements around cash flow (it must satisfy debt service coverage ratios), occupancy, physical condition, etc.

The lender will also probe into your personal financial condition, including your net worth, liquid assets, rental property investing experience, and more.  

And to top it all off, these loans are considered riskier than residential real estate loans, so they often contain less favorable terms, including higher interest rates, shorter loan terms, and prepayment penalties.

A buyer looking to purchase a single-family house or small multi-family has a much easier time of it because the loans are tied to residential real estate.   

Yes, there are still investment property financing requirements that the buyer needs to meet that are more stringent than a normal mortgage, but the level of scrutiny is not even close to what you will encounter when dealing with commercial loans.  

And once you are in the residential loan space, there are special programs that can offer even easier financing if you are willing to live in the property.

FHA loans are a great example.  They have looser qualifying requirements, including lower credit score requirements and more relaxed debt to income ratios.  Source: 

But remember, to qualify for FHA financing you must live in the house for a while before you can convert it into a rental.  That means that if you buy a single-family home, you are not making any rental income on that property until you make that conversion.

Small multi-families can get around that because you can live in the property and rent out the other units (and they still qualify for a 3.5% down payment through an FHA loan).  Source:

This means you start making rental income right away and get access to easy, low money down financing.

That’s a sweet spot that is only available for small multi-families.

Low Money Down Options

If you are looking for no (or low) money down options for apartments, you are going to be disappointed. 

The government understands that apartment investors are mostly well-heeled folks who do not need financial assistance.  So there aren’t really down payment assistance programs for them.

If you are looking to buy a single-family home or small multi-family as a rental property but are not going to live in it first, you have slim pickings here too.  Government programs offering you low money down options are really limited.

But there is good news too, you can still use some great strategies for no money down investing that don’t involve government assistance programs and don’t require you to live in your investment property.  

Check out my article discussing 15 ways to get real estate for little or no money down.  There are cool ideas there that you probably have not considered before.

Now if you a single family investor willing to live in the house first or you are a house hacker willing to live in a small multi-family, the government options below are really good.  

Let’s start with low-income programs (they are really amazing).

What is a great way to buy a home for no money down if I am low income?

One of the best ways to buy a home for no money down if you are low income is through the Chenoa Fund.  This is a federal program for homebuyers who meet certain low-income requirements.  If you qualify, you will receive down payment assistance of up to 3.5% of the purchase price (at a 0% interest rate and no monthly payments).  This will cover the 3.5% down payment required under an FHA loan.    

They allow you to buy duplexes under this program as long as you live in one of the units (no triplexes or quadplexes, though). Source:  Chenoafund

So that means if you get an FHA loan that requires a 3.5% down payment, you can use this program to get a duplex for no money down.  Plus if you make 36 consecutive payments on your FHA mortgage and you meet certain eligibility requirements you do not need to pay that down payment assistance loan back.  

If you are interested in learning more about this program (including their eligibility requirements), check them out here

There are also state-sponsored programs that offer similar types of assistance.  Here’s a good compilation of them courtesy of the US government (HUD). 

If you are not low income:

The Chenoa Fund has an option that has no income restrictions.  Under that option, you can still pay zero down on an FHA loan, but you have to pay back that second loan.  

Or if you don’t want to mess with any of the above, just get a normal FHA loan with a 3.5% down payment option.  

If you take a step back and think about it, 3.5% down is still incredibly low for an investment property!

Bonus Strategy:  There are also VA loans available to active members of the military, honorably discharged members, and spouses of military members killed in active duty. 

VA loans are also zero down and can be used to finance small multifamily properties

Vacancy/Non-Payment Risk

Apartments have a huge advantage when it comes to vacancy/non-payment risk because apartment owners get many rent checks coming in each month.  So even if one unit goes vacant or does not pay, the overall impact of not receiving that one rent check is relatively small.  

Compare that to single family rentals.  There is one source of rental income and if it fails, there is nothing to soften the blow.

Again, the small multifamily strikes a nice balance.  You can dramatically reduce your vacancy risk by having more than one tenant in you property and it will be very unlikely that two or more tenants will not pay (or will move out) at the same time. 


Scalability means how easy it is to grow your rental portfolio.  

Here, apartments dominate again.  You can’t compete with the scalability that apartments offer because you can increase your rental portfolio by huge chunks (each apartment can add dozens of units to your portfolio).

Single family homes are of course, the most difficult to scale because you are purchasing them one unit at a time.

Small multifamily rentals offer a happy medium.  You can expand meaningfully each time you buy a new small multifamily rental, especially if you buy quadplexes each time, without dropping huge dollars every time you do it.   

Centralized Maintenance

Centralized maintenance means taking care of your properties in a centralized way.  This matters because the more centralized you are, the more efficient and less costly it is to maintain your properties.

Centralized maintenance is another area where apartments shine – they have many units sharing a single roof, mechanicals, exterior, lawn, etc.  You can service and maintain all of them very conveniently.  

Single family homes are the opposite – you have to maintain them individually and at different locations.

Although not on the scale of apartments, small multifamily properties also offer some centralized maintenance. 

Concentration Risk

Concentration risk is the risk that a decline in a localized area negatively impacts a large proportion of your rental units.

Single family homes have the least concentration risk because they are typically scattered throughout a region. So if one house in a portfolio is impacted by a localized event, the others are ok.

Apartments owners, however, can experience dramatic consequences if the immediate area around their apartment starts to decline.  

Small multi-families again take the middle road, where a localized decline could hurt, but the financial impact is not as great as it is for an apartment (i.e., a maximum of 4 units could be impacted vs. many more for an apartment).    

Tax Benefits

As a general rule, apartments and single family rentals both enjoy significant tax advantages, including deductions for mortgage interest, operating expenses, depreciation and more.

Small multifamily rentals may have a slightly more nuanced tax picture, especially if you are house hacking.  You may need to pro-rate some of your deductions according to how much of the property is being used for rental purposes vs. how much is being used for personal purposes.


Tenant Interaction

Let me be clear – all three types of properties can have minimal tenant interaction.  

But if you house hack a small multifamily property, then your tenant interaction is not going to be minimal.  

You will be sharing a building with your tenant(s), which means you may be subject to loud music, constant requests from your tenants, and other annoyances that you wouldn’t have to deal with if your tenants lived apart from you.  

On the other hand, if you are a hands-on landlord, you may like the fact that you can keep an eye on your tenants and your property.  

And of course, responding to maintenance requests is a breeze because you live in the building. 

Intimidation Factor

Apartments are daunting investments.  Not only are they expensive to buy, but they are also expensive to maintain.  

Replacing a roof or exterior can be very expensive on a large building.  Tenants issues can be frequent because there are so many of them living together.  There can be a lot more headaches in general with apartment investing.

In contrast, there is far less complexity and risk with a single family rental or a small multi-family property.  

If you want to ease into an investment that doesn’t carry the type of stress that comes with an apartment building, a single family or small multi-family in a quality neighborhood may be the way to go.

What are the Drawbacks of Investing in Small Multi-family Properties?

No discussion of a potential rental investment would be complete without discussing some of its key risks and drawbacks.   

The main drawbacks of investing in small multifamily properties are higher costs and less availability when compared with single family homes, heightened financing requirements, and more frequent tenant interaction if you live in the building.

We touched already on the tenant interaction point, so I will not go into that again.

Qualifying for financing on small multifamily properties may be slightly more challenging due to their higher price and other factors, but you may be able to get credit for the expected rents that the rentable units will bring in.  

In any event, it will still be far easier than any financing associated with an apartment investment.

Finally, depending on your area, small multifamily investments may be hard to find.  They will certainly be rarer than your standard single family home.  

If you want an easy and effective way to find small multifamily investments you may want to look into Mashvisor.  

They provide a convenient online tool that can help you target small multifamily properties that meet your investment criteria.  This article shows how you can use them to locate the perfect small multifamily property for your investment needs.

You can use promo code AFF15 for a 7-day free trial of Mashvisor.  You also get a 15% discount forever on subscriptions to any Mashvisor plan.  

Click below to take advantage of this offer. 


If apartment renting is too hot for you because of its high cost, complexity, and risk, and single-family investing is too cold because of its inability to scale and grow quickly, then the small multi-family may be the rental property investment that’s just right.