Multifamily Investing for Beginners: 2-4 Unit Guide

Small multifamily properties—duplexes, triplexes, and fourplexes—offer the perfect entry point into [real estate investing](/blog/brrrr-strategy-guide). They combine the financing advantages of single-family homes with the cash flow power of multiple rental units.

This guide shows you exactly how to buy and manage your first 2-4 unit property, even if you're starting with limited capital.

Why 2-4 Units Are Perfect for Beginners

Advantage #1: Residential Financing (3.5% Down)

Properties with 2-4 units qualify for residential financing if you live in one unit. This means:

• FHA loans: 3.5% down
• Conventional loans: 5% down
• VA loans: 0% down (if you're a veteran)
• Interest rates: Similar to single-family home rates

Compare this to 5+ unit properties (commercial financing):

• 25-30% down payment required
• Higher interest rates
• Stricter qualification standards
• Shorter loan terms (15-20 years vs. 30)

Example:

• Duplex purchase price: $250,000
• FHA down payment (3.5%): $8,750
• 30-year mortgage at 7%

vs.

• 8-unit apartment building: $500,000
• Commercial down payment (25%): $125,000
• 20-year mortgage at 8%

The duplex is 14x more accessible from a capital standpoint.

Advantage #2: Risk Diversification

With a single-family rental, vacancy means 100% income loss. With a fourplex, one vacancy means 75% of your income remains.

Cash flow comparison during vacancy:

Single-family rental:

• Normal income: $1,500
• One vacancy: $0
• Income loss: 100%

Fourplex:

• Normal income: $4,800 (4 units × $1,200)
• One vacancy: $3,600
• Income loss: 25%

This stability makes multifamily properties safer investments, especially for beginners.

Advantage #3: Easier to Scale

Once you understand how to manage one duplex, managing a fourplex uses the same systems. Scaling from 1 property to 4 units is simpler than managing 4 separate single-family homes across different neighborhoods.

Efficiency gains:

• One roof to maintain (not four)
• One property tax bill (not four)
• One insurance policy
• One location to visit for maintenance
• Bulk purchasing for repairs and upgrades

Advantage #4: Forced Appreciation Opportunities

With multifamily properties, value is determined by income (not just comparable sales like single-family homes).

Commercial valuation formula: Net Operating Income ÷ Cap Rate = Property Value

What this means: Increase income or decrease expenses, and you directly increase property value.

Example:

• Current NOI: $24,000/year
• Market cap rate: 8%
• Current value: $24,000 ÷ 0.08 = $300,000

Increase rents by $100/month per unit (4 units):

• New NOI: $24,000 + ($100 × 4 × 12) = $28,800
• New value: $28,800 ÷ 0.08 = $360,000
• Value increase: $60,000 from $4,800 in annual rent increases

Duplex vs. Triplex vs. Fourplex: Which Is Right for You?

Duplexes (2 Units)

Pros:

• Most abundant inventory
• Often in better neighborhoods than larger multifamily
• Easier to manage as a beginner
• Can live in one, rent the other (house hacking)
• Simplest to finance

Cons:

• Lowest total cash flow
• 50% vacancy rate if one unit is empty
• Limited economies of scale

Best for: First-time investors, house hackers, those in expensive markets where larger multifamily is unaffordable.

Typical price range: $150,000-400,000 (varies widely by market)

Triplexes (3 Units)

Pros:

• Better cash flow than duplexes
• Still relatively easy to manage
• Good vacancy protection (33% vs. 50%)
• Better economies of scale

Cons:

• Less inventory than duplexes
• Often in transitional neighborhoods
• Slightly more complex management

Best for: Investors ready to scale beyond duplexes, those seeking better cash flow.

Typical price range: $200,000-500,000

Fourplexes (4 Units)

Pros:

• Highest cash flow in the residential category
• Best vacancy protection (25% per unit)
• Maximum efficiency per property
• Still qualifies for residential financing

Cons:

• Least inventory (many markets have very few)
• More management intensive
• Often in lower-income areas
• Higher purchase price

Best for: Investors wanting maximum cash flow while still using residential financing.

Typical price range: $250,000-600,000+

How to Find Small Multifamily Properties

MLS (Multiple Listing Service)

Work with a real estate agent who specializes in investment properties.

Search tips:

• Filter for 2-4 units
• Look for properties on the market 30+ days (motivated sellers)
• Search keywords: "investor special," "duplex," "income property"
• Set up automatic alerts for new listings

Best markets on MLS:

• Midwest (Cleveland, Indianapolis, Kansas City)
• Southeast (Memphis, Birmingham, parts of Florida)
• Rust Belt (Buffalo, Rochester, Pittsburgh)

Off-Market Strategies

Many small multifamily owners aren't actively selling but will consider offers.

Direct mail campaigns:

• Target absentee owners (they own but don't live there)
• Target owners who've held properties 10+ years (may be ready to retire)
• Target properties with code violations (owner might be overwhelmed)

Sample message: "Hi, I'm a local investor interested in purchasing your property at [address]. I can close quickly with cash or financing. Would you consider selling? Call me at [number]."

[Driving for dollars](/blog/driving-for-dollars-guide):

• Drive target neighborhoods
• Look for deferred maintenance (peeling paint, overgrown yards)
• Note addresses
• Look up owner information (county records)
• Send letters or knock on doors

Wholesalers:

• Network with local wholesalers
• They find deals but don't buy them themselves
• You pay a finder's fee (usually $5,000-15,000)
• Access to off-market deals

Analyzing Multifamily Listings

Use the same metrics from "How to Analyze a Rental Property Deal," but pay special attention to:

1. Rent roll accuracy

Don't trust seller-provided numbers. Verify:

• Request actual lease agreements
• Check comparable rents on Zillow, Apartments.com
• Call competing landlords asking about availability and pricing
• Inspect units (are they really rentable at the stated price?)

2. Operating expense ratio

For 2-4 units, operating expenses typically run 40-50% of gross income (not the 50% rule used for larger properties, since there's less economy of scale).

Typical expenses:

• Property taxes: (varies by county—check tax records)
• Insurance: $1,000-2,500/year
• Repairs/maintenance: 5-10% of rent
• Vacancy: 5-10%
• Property management: 8-10% (if hiring a PM)
• Utilities (if owner-paid): varies
• Lawn/snow: $50-150/month
• Pest control: $30-50/month

3. Deferred maintenance

Small multifamily properties often have deferred maintenance. Budget for:

• Roof (lifespan: 20-25 years): $8,000-15,000
• HVAC per unit (lifespan: 15-20 years): $3,000-6,000
• Water heaters per unit (lifespan: 10-12 years): $500-1,000
• Foundation issues: $5,000-30,000+

Get a professional inspection. It costs $400-700 but can save you tens of thousands.

Financing Your First Small Multifamily

FHA Loan (3.5% Down)

Requirements:

• Credit score: 580+ (620+ for best rates)
• Debt-to-income ratio: 43% max (sometimes 50%)
• Owner-occupancy: Must live in one unit for 12 months
• Property condition: Must meet FHA safety standards

Rent offset: FHA allows you to use 75% of projected rental income to offset your mortgage when calculating DTI.

Example:

• Monthly mortgage (PITI): $2,400
• Rental income (3 units × $800): $2,400
• Income used for qualification: $2,400 × 75% = $1,800
• Effective mortgage payment for qualification: $2,400 - $1,800 = $600

This makes it much easier to qualify.

Downsides:

• Upfront mortgage insurance: 1.75% of loan amount
• Monthly mortgage insurance: 0.55% of loan amount annually
• MIP never drops off (unless you put 10%+ down and wait 11 years)

Conventional 5% Down (Owner-Occupied)

Requirements:

• Credit score: 620+ (680+ for best rates)
• DTI: 45-50% max
• Owner-occupancy: 12 months minimum
• Cash reserves: 2-6 months of payments

Benefits over FHA:

• No upfront mortgage insurance
• Monthly PMI drops off at 20% equity
• Slightly higher loan limits
• Fewer property condition restrictions

Downsides:

• Slightly higher down payment than FHA
• PMI can be expensive with lower credit scores (0.5-1.5% annually)

Conventional 20-25% Down (Investment Property)

If you're not planning to live in the property, you'll need [investment property financing](/blog/dscr-vs-hard-money-loans).

Requirements:

• Credit score: 680+ (720+ for best rates)
• DTI: 45% max
• Down payment: 20-25%
• Cash reserves: 6 months of payments

Benefits:

• No mortgage insurance
• Can buy as many as you want (well, up to 10 with Fannie/Freddie)
• Don't have to live there

Downsides:

• Much higher down payment
• Slightly higher interest rates (0.5-1% more than owner-occupied)

VA Loan (0% Down)

Requirements:

• Military service or veteran status
• Certificate of Eligibility
• Credit score: 620+
• Owner-occupancy: 12 months

Benefits:

• $0 down payment
• No monthly mortgage insurance
• Can use rental income for qualification

Downsides:

• VA funding fee: 2.3% (can be rolled into loan)
• Limited to eligible veterans
• Property must meet VA standards

Managing Your Small Multifamily Property

Should You Self-Manage or Hire a Property Manager?

Self-management pros:

• Save 8-10% of rent ($200-400/month on a fourplex)
• Direct control over tenant quality
• Immediate knowledge of property issues
• Learn the business faster

Self-management cons:

• Time-intensive (calls, showings, maintenance coordination)
• Emotional involvement (harder to enforce rules with tenants you know)
• Learning curve (mistakes are costly)

Property management pros:

• Hands-off income
• Professional tenant screening
• Established vendor relationships
• Scalable (easy to add more properties)

Property management cons:

• Cost: 8-10% of rent + leasing fees (50-100% of first month's rent per new tenant)
• Less control over decisions
• Quality varies widely among managers

Rule of thumb: Self-manage your first 1-2 properties to learn the business. Hire a PM when you scale beyond 3-4 properties or if you work full-time and can't respond quickly.

Tenant Screening for Multifamily

Screen even more carefully for multifamily than single-family. One bad tenant impacts the entire property.

Minimum standards:

• Credit score: 600+ (or strong rental history)
• Income: 3x monthly rent
• No evictions in past 5 years
• Employment verification
• Previous landlord references (call 2 previous landlords, not just current)

Additional considerations for multifamily:

• Noise tolerance (units share walls—screen for respectful tenants)
• Pet policies (enforce strictly and consistently)
• Guest policies (frequent guests can strain parking and create disputes)

Fair housing compliance: You must apply criteria consistently across all applicants. Discriminating based on race, religion, family status, or other protected classes is illegal and costly.

Setting Rents

Market rent strategy: Research comparable units and price competitively (within 5-10% of market rate).

Tools:

• Rentometer (quick market snapshot)
• Zillow, Apartments.com (active listings)
• Call property managers managing similar properties

Should you offer discounts?

• First month free: Only in very slow markets or to attract high-quality tenants
• Lower rent for longer lease: Sometimes (e.g., $50/month discount for 2-year lease)
• Rent concessions vs. lower base rent: Always lower base rent if possible (it affects future increases)

Rent increases: Increase annually by 3-5% to keep pace with inflation and market rates. Communicate increases 60-90 days before lease renewal.

Maintenance and Repairs

Create a maintenance system:

1. Tenants report issues via email or online portal (creates paper trail)

2. Categorize by urgency:

   • Emergency (flooding, no heat in winter, fire): Respond immediately
   • Urgent (broken AC in summer, plumbing issues): Within 24 hours
   • Routine (leaky faucet, cosmetic issues): Within 1 week

3. Build a vendor list:

   • Plumber
   • Electrician
   • HVAC technician
   • General handyman
   • Roofer
   • Locksmith

4. Get multiple quotes for jobs over $500

5. Track all expenses (use [property management software](/blog/best-property-management-software-2026) like Stessa, Rentec Direct, or Buildium)

Budget for maintenance:

• 5-10% of rent for routine repairs
• 5% of rent for capital expenditures (CapEx)

On a fourplex renting for $4,000/month total, budget $200-400/month for repairs and $200/month for CapEx.

Avoiding Common Tenant Issues

Problem #1: Noise complaints

Solution:

• Include quiet hours clause in lease (e.g., 10 PM - 7 AM)
• Enforce consistently
• Consider noise from above—install carpet requirements for upstairs units
• Address complaints immediately before they escalate

Problem #2: Parking disputes

Solution:

• Assign specific parking spaces
• Include in lease
• Mark spaces with numbers/signs
• Enforce towing policy for violations

Problem #3: Shared utility disputes

Solution:

• Separate utilities whenever possible
• If shared, clearly specify who pays what in the lease
• Consider submeters or RUBS (Ratio Utility Billing System)

Problem #4: Lease violations

Solution:

• Document everything in writing
• Issue formal notices for violations (templates available from state realtor associations)
• Follow through with consequences (fines, eviction if necessary)
• Consistency is key (don't let some tenants break rules while enforcing on others)

Scaling from 1 to Multiple Small Multifamily Properties

The 1-Year Move Strategy

If you use owner-occupied financing, you can buy one small multifamily per year using the same low-down-payment strategy.

Year 1: Buy a fourplex with FHA (3.5% down), live in one unit Year 2: Buy another fourplex with FHA, move there (keep first as full rental) Year 3: Buy a third fourplex, repeat

After 3 years:

• You own 12 rental units
• Total down payments: ~$30,000 (assuming $300k properties)
• Portfolio value: ~$900,000
• Equity: ~$150,000+ (depending on appreciation and principal paydown)

Important: Check with your lender. Some have rules about multiple FHA loans, but exceptions exist for relocations or family size changes.

Refinancing to Pull Equity

After 12-24 months, refinance to pull equity for the next purchase.

Example:

• Original purchase: $300,000 (FHA 3.5% down = $10,500)
• Appreciation (3% per year for 2 years): $318,000
• Principal paydown: ~$8,000
• New equity: ~$26,500
• Refinance at 75% LTV: $238,500 loan
• Original loan balance: ~$282,000
• Cash out: $238,500 - $282,000 = Can't pull cash yet

In this scenario, you'd need more equity before a [cash-out refinance](/blog/cash-out-refinance-guide) works. Wait another year or two, or use other financing methods.

Portfolio Lenders for Scaling

Once you have 4-5 properties with conventional financing, conventional lenders cap you (Fannie/Freddie limit is 10 financed properties).

Portfolio lenders hold loans on their own books without selling to Fannie/Freddie.

Benefits:

• No limit on number of properties
• More flexible underwriting
• Can finance properties that don't meet Fannie/Freddie standards

Drawbacks:

• Higher interest rates (0.5-1.5% more)
• Larger down payments (25-30%)
• Shorter loan terms (sometimes 15-20 years)

Tax Benefits of Small Multifamily Investing

Depreciation

Residential rental property depreciates over 27.5 years.

Example:

• Purchase price: $300,000
• Land value (non-depreciable): $60,000
• Building value: $240,000
• Annual depreciation: $240,000 ÷ 27.5 = $8,727

This $8,727 is a non-cash expense that reduces your taxable income.

If your annual cash flow is $6,000:

• Taxable income: $6,000 - $8,727 = -$2,727 (a loss on paper)
• You pay $0 tax on the $6,000 cash flow
• The $2,727 "loss" might offset other income (depending on your situation)

Cost Segregation

Advanced strategy: hire a cost segregation specialist to reclassify components of your property into shorter depreciation schedules.

Components that can be accelerated:

• Appliances (5 years)
• Carpeting (5 years)
• Landscaping (15 years)
• Land improvements (15 years)

This creates larger deductions in early years.

Best for: Properties over $500,000 or investors with high W-2 income to offset.

1031 Exchange

Sell one property and buy another of equal or greater value without paying capital gains tax.

Requirements:

• Like-kind property (rental for rental)
• Identify replacement property within 45 days
• Close within 180 days
• Use a [qualified intermediary](/blog/1031-exchange-rules-2026)

Strategy: Sell a fourplex, buy two duplexes (or one larger multifamily). Defer taxes and scale your portfolio.

Common Mistakes with Small Multifamily

Mistake #1: Ignoring Property Management from Day One

Even if you self-manage, set up systems like you have a property manager:

• Online rent payment
• Maintenance request portal
• Professional lease agreements
• Accounting software

This makes scaling much easier.

Mistake #2: Underestimating Vacancy

New investors assume 100% occupancy forever. Reality: expect 5-10% vacancy annually.

Budget accordingly:

• Fourplex with $4,000/month total rent
• 10% vacancy: $400/month
• Set aside $400/month for future vacancy costs

Mistake #3: Buying in Declining Neighborhoods

Cheap cash flow in a declining area is a trap. Property values fall, crime rises, tenant quality deteriorates.

Research neighborhood trends:

• Population growth (check Census data)
• Crime statistics (local police department websites)
• School ratings (GreatSchools.org)
• New development/investment

Mistake #4: Tenant Favoritism

Treating some tenants differently than others invites complaints and potential legal issues.

Enforce policies consistently across all units and all tenants.

Mistake #5: Delaying CapEx Reserves

A [new roof costs](/blog/heloc-for-roof-replacement) $12,000. If you haven't been setting aside $100-200/month for CapEx, you'll be caught off-guard.

Set up a CapEx savings account. Treat it like an expense, not optional savings.

FAQ

Should I buy a duplex or a single-family rental as my first property? Duplex if you want better cash flow and vacancy protection. Single-family if you prioritize appreciation and simpler management. Ideally, start with a duplex and live in one side (house hacking).

How much should I expect in monthly cash flow from a fourplex? Varies by market. In cash flow markets (Midwest, Southeast), $400-800/month is realistic. In expensive markets (California, Northeast), you might break even or have slight negative cash flow.

Can I use an FHA loan if I already own a home? Generally no, unless you're relocating for work, your family outgrew your current home, or you're assuming a loan from a family member. Most people sell their current home first or use conventional financing.

What's the best property management software for small multifamily?

• Stessa (free, great for beginners)
• TurboTenant (free)
• Buildium ($50-150/month, more features)
• Rentec Direct ($45-135/month)

How do I handle one bad tenant among multiple good ones? Address the issue immediately with written notices. Don't let it slide because you fear losing the tenant—bad tenants drive good ones away. Follow eviction procedures if necessary.

Should I put utilities in my name or the tenants' names? Tenants' names whenever possible. This shifts responsibility and ensures you're not stuck with unpaid bills. If utilities can't be separated, use RUBS (Ratio Utility Billing System) to bill back.

Can I convert a large single-family home into a multifamily? Depends on zoning. Some cities allow ADU conversions or basement apartment additions. Check local zoning codes and permit requirements before purchasing.

What's the best way to find a good property manager? Ask local real estate investors for referrals, interview 3-5 companies, check reviews, verify licenses, and ask detailed questions about their tenant screening process and maintenance response times.

How long should I hold a small multifamily property? Minimum 5 years to benefit from appreciation and principal paydown. Many investors hold 10-20+ years or until they can 1031 exchange into a larger property.

What if I can't fill all the units? Lower rent slightly (5-10%), improve marketing (better photos, broader listing platforms), offer move-in incentives (first month free), or improve the units (fresh paint, new flooring).

Related Articles

• 1031 Exchange for Beginners: Complete Guide to Deferring Capital Gains Taxes
• 1031 Exchange: Defer Taxes, Build Wealth Faster
• [[Rental Property Depreciation](/blog/depreciation-real-estate-guide) Guide: How to Maximize Your Tax Deductions in 2026](/blog/depreciation-rental-property-guide)