What is Multifamily Investing?
Multifamily investing involves purchasing residential properties with two or more units. This ranges from small duplexes and triplexes to large apartment complexes with hundreds of units. Multifamily is the second most common property type for individual investors (after SFR) and the dominant asset class for institutional investors.
Small vs large multifamily
Small multifamily (2-4 units): Classified as residential for financing purposes. Eligible for FHA, VA, and conventional loans with owner-occupancy. Appraised based on comparable sales. Managed by individual investors or small property managers.
Large multifamily (5+ units): Classified as commercial. Requires commercial financing (higher rates, shorter terms, larger down payments). Valued based on income (NOI and cap rate), not comparable sales. Typically requires professional property management.
Advantages over SFR
Multiple income streams reduce vacancy risk (losing one tenant in a fourplex means 25% vacancy, not 100%). Economies of scale (one roof, one lot, one insurance policy for multiple units). Income-based valuation for 5+ units means you can force appreciation by increasing rents or reducing expenses. Higher total cash flow per property.
Disadvantages
Higher complexity, more tenant management, higher maintenance costs, more regulatory requirements (especially for 5+ units). Financing is more restrictive for investment-purpose multifamily. Tenant quality tends to be more varied. Exit liquidity is lower because the buyer pool is smaller than SFR.
Wholesaling multifamily
Multifamily properties can be wholesaled, and the assignment fees are often larger because the property values are higher. However, the buyer pool is more specialized. Your marketing needs to target investors specifically looking for multifamily, presenting NOI, cap rate, and unit-level rent data in your marketing package.