What is Multifamily Real Estate?
Multifamily real estate refers to residential properties containing two or more separate dwelling units under one roof or within one complex. Multifamily includes duplexes (2 units), triplexes (3 units), fourplexes (4 units), and apartment buildings (5+ units). The critical dividing line is between 1-4 units (residential financing) and 5+ units (commercial financing).
Multifamily investing is attractive because multiple units spread vacancy risk across tenants. If one tenant in a fourplex moves out, you lose 25% of income, not 100%. This income diversification, combined with economies of scale in management and maintenance, makes multifamily a preferred asset class for building passive income portfolios.
Small multifamily (2-4 units)
Properties with 2-4 units can be financed with residential mortgages (FHA, VA, conventional) when the buyer occupies one unit. FHA allows 3.5% down on a fourplex if owner-occupied. This is one of the most powerful entry points for new investors: live in one unit, rent the other three, and let tenants cover your mortgage while you build equity.
Large multifamily (5+ units)
Properties with 5+ units require commercial financing with different underwriting standards. Lenders focus on the property's DSCR and NOI more than the borrower's personal income. Valuation uses the income approach (NOI / cap rate) rather than comparable sales, meaning investors can force appreciation by increasing income or reducing expenses.
Multifamily deal analysis
Key documents for multifamily due diligence: rent roll (current income), trailing 12-month operating statements (actual expenses), rent comps (income upside potential), utility bills, lease abstracts, and capital expenditure history. Verify everything. Sellers sometimes present proforma numbers that overstate income and understate expenses.