Small Multifamily DSCR Loan Strategy (2-4 Units)

Small multifamily properties (2-4 units) are the sweet spot for DSCR loan investors who want stronger cash flow per dollar invested. One purchase, one loan, multiple income streams — and DSCR lenders finance them just like single-family homes.

Why Small Multifamily?

Higher Cash Flow Per Property

A fourplex generating $5,200/month in total rent on a $400,000 purchase outperforms a single-family home generating $1,800/month on a $300,000 purchase in rent-to-price ratio.

Built-In Vacancy Protection

If one unit in a fourplex is vacant, you still have 75% occupancy. A vacant single-family home = 0% income.

Lower Per-Unit Acquisition Cost

A $400,000 fourplex costs $100,000 per unit. Four separate $300,000 SFRs cost $1.2M total. Multifamily is more capital-efficient.

One Roof, One Loan

One property = one mortgage, one insurance policy, one property tax bill, one management relationship. Simpler than managing four separate houses.

DSCR Numbers for Small Multifamily

Fourplex Example:

• Purchase price: $420,000
• Down payment (25%): $105,000
• DSCR loan: $315,000 at 7.25%
• Monthly P&I: $2,148
• Taxes: $450/month
• Insurance: $250/month
• Total PITIA: $2,848
• Unit rents: 4 × $1,350 = $5,400/month
• DSCR: 1.90 ✅

Small multifamily properties often produce the highest DSCR ratios because the cumulative rent from multiple units easily covers a single mortgage.

Property Types

Duplex (2 Units)

• Entry point: $200K-$400K
• Management: Simplest multifamily
• Common: Side-by-side or up/down configurations
• Tenant dynamics: One neighbor = more intimate, choose tenants carefully

Triplex (3 Units)

• Entry point: $250K-$500K
• Often: One larger unit + two smaller units
• Cash flow sweet spot in many markets
• Less common on market (harder to find)

Fourplex (4 Units)

• Entry point: $300K-$600K
• Maximum units for residential DSCR financing
• Best cash flow efficiency
• 5+ units requires commercial lending (different process)

Finding Small Multifamily Deals

These properties are less common on the MLS than single-family homes. Best sources:

• MLS with property type filter — search specifically for 2-4 unit properties
• Off-market outreach — direct mail to multifamily owners
• Driving for dollars — identify multi-unit properties in target neighborhoods
• Commercial real estate brokers — some specialize in small multifamily
• BiggerPockets marketplace — investor-to-investor sales
• Auction sites — Auction.com, Hubzu

Management Considerations

Common Area Maintenance

Shared spaces (hallways, laundry, parking, yard) require maintenance that doesn't exist with SFRs. Budget accordingly.

Tenant Relations

Tenants sharing a building interact with each other. Noise complaints, parking disputes, and shared-space conflicts are more common. Clear lease rules and responsive management prevent most issues.

Utility Metering

Individually metered units (tenants pay their own utilities) are strongly preferred. Master-metered properties require you to include utilities in rent or implement RUBS (Ratio Utility Billing System).

Turnover Efficiency

When one unit turns over, the other units continue generating income. You can schedule renovations between tenants without losing all property income.

The 4-to-5 Unit Jump

DSCR loans cover 1-4 unit residential properties. At 5+ units, you enter commercial lending territory with:

• Different loan products and terms
• Higher interest rates and shorter terms
• Different appraisal methods (income approach only)
• More complex underwriting

Many investors build portfolios of fourplexes specifically to stay within residential DSCR lending guidelines while maximizing unit count.

Small Multifamily vs. SFR Portfolio

Both approaches work — the best strategy often combines them.

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