Strategies for Transitioning to Multifamily Properties with Positive Cash Flow?

Question

Hi everyone, this is my first post! I found this forum through the audiobook Crushing It in Apartments and Commercial Real Estate.

I live in the Bay Area in CA, but have invested in Florida, where I fully own three townhouses bought over the past 10 years. They’ve been solid investments, with rising rents and property appreciation, but over the last 2 years, skyrocketing HOA fees and stagnant value growth have reduced cash flow. While still profitable, I’m exploring better opportunities and considering multifamily (MF) properties.

In my search for $1M properties (with $150K–$180K down payments), I’ve found that the NOI often matches the mortgage payments, leaving little to no monthly cash flow. I’ve focused mainly on Florida but have also looked at options in Sacramento and other slightly more remote locations in CA.

While I’m familiar with value-add strategies (ADUs, renovations or storage rentals), these seem like heavy lifts for modest gains. How do others manage to create positive cash flow from MF properties with debt? Any advice would be greatly appreciated!

Eric Fernwood · Answer

Hello @Daniel Reed,

The supposed advantage of multi-family properties over single-family homes is misleading when you look at financial performance. Here’s a comparison:

Income reliability and net cash flow: In Las Vegas, a fourplex in reasonable condition costs about the same as two single-family homes, but they attract very different tenants. Multi-family properties typically draw transient tenants, singles or couples without children, who stay only 1–2 years and cause moderate to serious damages. In contrast, single-family homes attract families with children, who stay an average of five years and take care of the property. Longer tenancies mean lower turnover and vacancy costs, so two single-family homes usually generate more reliable income and higher net cash flow than a fourplex.

Vacancy risk: A fourplex has four times the vacancy risk of a single-family home. If one or more units are vacant, the remaining units often don’t provide enough cash flow to cover expenses, making it harder to meet operating costs.

Maintenance costs: A fourplex comes with four times the appliances, plumbing, HVAC systems, and other components to maintain, leading to significantly higher repair and maintenance expenses than single-family homes.

If you want to see the detailed calculation, read this BP blog - More Units Doesn’t Mean More Money—Why a Single-Family Home Can Beat a Fourplex.

Resale value: Multi-family properties have a limited buyer pool—mainly investors—who base their offers on CAP rates. Without major rent increases, multi-family property values tend to stay flat. Single-family homes, however, appeal to investors and homebuyers, giving them broader market demand and more potential for appreciation.

The bottom line: When deciding between multi-family and single-family properties, focus on actual net cash flow, not dogma.

Dave Foster · Answer

@Daniel Reed, cost of money is killing good returns these days.  And the condo debacle in FL will be churning for quite a while as these rogue HOAs try to get realistic with deferred maintenance, new requirements, and freedom for people to use as they need to afford them.

One thing to consider would be to 1031 all of them in a consolidation exchange.  And buy 2 replacement properties.

1. A fully paid for larger MF.  This gets you away from the HOA, into the MF sector.  And keeps you out of any trouble with debt. Your equity is concentrated and not costing you anything.

2. Your second property is either a highly leveraged property to round out. your 1031.  Or a DST which absorbs all your debt but still leaves you with some cash flow because of the institutional financing already on the DST property.

Combining these two minimizes the impact of financing on your Net revenue.  And still defers all the tax and depreciation recapture in the 1031 exchange.

Jake Andronico · Answer

@Daniel Reed

Curious if you've taken a look over the hill in Reno, NV. People still sleep on the area and it is very close to Nor CA but has a lot of different benefits with similar appreciation.

It doesn't make sense for everyone, but is not on a lot of people's radars and is often overlooked.

Putting that little down on a multifamily property will likely not work for most lenders (especially 5 units and up) with DSCR ratios being difficult with interest rates so high.

Putting more down will give you positive cash flow, with a clear plan to increase rents as well.

Daniel Reed · Answer

@Jonathan Greene

So, are you suggesting that this issue is indeed driving investors away from Florida? I’ve been exploring MF properties because complexes in the $1M to $1.5M range appear to generate better NOI. However, from what I’ve observed, it’s still not enough to produce meaningful cash flow. My main focus on Florida stems from an established working relationship with a property management company there. I realize this may not be a strong enough reason if the market dynamics have shifted.

As for California, my interest lies in the fact that I live here. Managing the operation myself could save money and provide better control compared to working with out-of-state properties. That said, the numbers in California don’t seem to add up for me. It’s either not a favorable market for real estate investment focused on cash flow, or perhaps my limited familiarity with the local multifamily market is holding me back.

Jonathan Greene · Answer

The insurance costs for small multifamily in Florida, especially with older builds, is rising and rising. If you are backing out of Florida because the properties aren't doing as well you like, why would you look for more units in a similar area and think the numbers will work there? You could sell those three properties and 1031 into a larger apartment building in the Midwest in much better shape and with management most likely without the same number trouble you are facing. You have OOS management experience so why Florida or Cali?

Anderson Banegas Cerrato · Answer

Hi Daniel,

Great first post! It sounds like you’ve built a solid foundation with your Florida townhouses. Transitioning to multifamily can be a smart move, but as you’ve noticed, finding positive cash flow in today’s market can be tricky.

From what I’ve learned, focusing on properties with under-market rents can be a game-changer. By repositioning the property (like improving tenant quality or adding amenities), you can boost the NOI over time. Also, looking at slightly less competitive markets might open up opportunities with better cash flow potential.

What’s drawn you to Sacramento and Florida so far? Would love to hear more about your thought process as I’m prepping for my first multifamily deal, too!

Best,

Anderson

Drago Stanimirovic · Answer

Hi Daniel,

Your challenge is common in today’s market. To generate positive cash flow in multifamily with debt, you can focus on undervalued markets with higher cap rates, like parts of Texas, Georgia, or the Carolinas, where rent-to-price ratios are better. Use strategic financing options like DSCR loans or interest-only periods to improve cash flow. Target properties with below-market rents or operational inefficiencies for value-add potential. Additionally, creative revenue streams like adding storage or premium amenities can boost NOI. Finally, be open to slightly remote locations with better cash flow potential over high-appreciation markets.

If you’d like help analyzing properties or securing financing, let me know I’d be happy to assist.

Best,Drago

Samuel Diouf · Answer

Hey Daniel,

Congrats on owning 3 townhomes in Florida. I’m sure they’ve brought you some solid returns.

A lot of investors in expensive markets are running into the same problem where cash flow just doesn’t add up anymore. This is pushing many to look at areas that still offer strong cash flow backed by solid economic factors.

I’m originally from Florida, but experienced the same issue after factoring in all the expenses. That’s why I shifted my focus to the Midwest, where industries are growing and property prices are still affordable.

Dan H. · Answer

If i lived in San Jose, the first RE investment that i would consider is a local property with an ADU that had distribution on the lot that would allow a profitable lot split.

Internet search ADU lot split “San Jose”

Here is one search result that is what i am suggesting: https://www.reddit.com/r/SanJose/comments/1e7lhkv/san_jose_b...

Good luck

Scott Scoville · Answer

Hey Daniel, sounds like your in a good spot to reposition your portfolio. I'm an investor and agent in Sacramento. I started out with value add, where we force appreciated properties by adding square footage and beds/baths. I've now reallocated those gains into cash flowing seller finance properties. There's a lot of creative ways to build equity and or cash flow in Sacramento.

Strategies for Transitioning to Multifamily Properties with Positive Cash Flow?

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