Small Multifamily Only Works 1 of 4 Ways Right Now

Provo, Utah
Multi-Family and Apartment Investing
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Small Multifamily Only Works 1 of 4 Ways Right Now

Masyn Grant Barney
Real Estate Agent · Spanish Fork, UT · Member since 2020 · 79 posts · 56 votes

Small Multifamily (2-4 units) Only Works 1 of 4 Ways Right Now

1. Large down payment sacrificing Cash on cash return. You may be able to break even or cashflow, but you'll be putting 25%+ down and your CoC will be pretty bad. So if CoC is your metric, look elsewhere.

2. House Hacking. Your numbers may not seem to make sense from a cashflow position, but you will be getting into a multifamily property with very little cash (comparatively) and lowering your mortgage expenses compared to not house hacking. You will need to wait to refinance or wait for rent growth or both to be able to move out and at least break even.

3. Seller finance / subject to / assumable loans. All three ways can get you into a small multifamily property at a lower monthly payment compared to market so that you can cashflow. You will likely need a large down payment like you would in #1 but your cashflow position should be better. These are much harder to find and require more work and potentially more risk.

4. You are able to do short term rentals. Short term rents are typically higher than long term and could push you over the edge to break even or possibly cashflow. You are intentionally trading time for money to make the numbers work. This is definitely not the path I would take unless the numbers are sweet and STRs are fully legal in the zone your are buying.

Is there any other way to make them work in this market? Would love your thoughts!

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Greg Kasmer
Rental Property Investor · Philadelphia, PA · Member since 2021 · 774 posts · 501 votes
2y

Masyn - I bought a quad this year and although I had to put down a larger down payment the cash flow will be good/above average in the long term - mainly because the existing rents were $300-$400 below market. So, I believe some of the fundamentals of larger multifamily (increasing NOI via increasing revenues or decreasing expenses) are beneficial to smaller multifamily although the ultimate value is not determine by NOI, but by comps.

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  • Greg Kasmer
    Rental Property Investor · Philadelphia, PA · Member since 2021 · 774 posts · 501 votes
    2y

    Masyn - I bought a quad this year and although I had to put down a larger down payment the cash flow will be good/above average in the long term - mainly because the existing rents were $300-$400 below market. So, I believe some of the fundamentals of larger multifamily (increasing NOI via increasing revenues or decreasing expenses) are beneficial to smaller multifamily although the ultimate value is not determine by NOI, but by comps.

    5Reply
  • Masyn Grant Barney
    OP
    Real Estate Agent · Spanish Fork, UT · Member since 2020 · 79 posts · 56 votes
    2y

    @Greg Kasmer, interesting. So are you saying you bought it at a discounted price because rents were low? If not, how is it an advantage to buy with low rents if the property is being valued based on comps? 

    1Reply
  • Gino BarbaroPro Member
    Rental Property Investor · St Augustine, FL · Member since 2014 · 2k+ posts · 1k+ votes
    2y

    @Masyn Grant Barney

    I think it is dependent upon the market. In a more cap appreciation market, very difficult to make the numbers work without a large down payment.

    Great breakdown of the ways to get into the game

    Gino

    Podcast Guest on Show The “Conveyor Belt” System That’ll Build You a BIG Rental Portfolio Quickly
    1Reply
  • Alecia LovelessPro Member
    Member since 2019 · 3k+ posts · 2k+ votes
    2y

    @Masyn Grant Barney Depends on your market. In areas I’m familiar with you can still put down 20% and get decent cash flow on certain properties.

    2Reply
  • Masyn Grant Barney
    OP
    Real Estate Agent · Spanish Fork, UT · Member since 2020 · 79 posts · 56 votes
    2y
    Quote from @Alecia Loveless:

    @Masyn Grant Barney Depends on your market. In areas I’m familiar with you can still put down 20% and get decent cash flow on certain properties.


     For sure! I guess I should have specified in my post that I was talking about Utah and similar markets. A standard 4plex sells for $1M but rents for $4800 with a $6k+ mortgage. Significantly negative soft cash flow. Not to mention reserves. 

    0Reply
  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    2y

    Ent by the room and/pr student housing. And 1031 exchanges. And people planning to do a cost segregation for the tax savings. And appreciation plays. (Cash flow is always a gamble.). And people who plan to refinance at lower rates. Which of course also means people with access to low cost capital already. 

    If the properties sit on the market for 120+ days, you are correct. If they sell at their current prices there are plenty of ways. Nobody is forcing people to buy them. Maybe reach out to the buyers assuming they are listed on the county property tax records. 

    People who say something is impossible are often interrupted by someone doing it. (I know, you didn’t say impossible, but you ONLY considered cash flow when you determined if they were good investments.  And yet people put funds (often 100% of their retirement funds) in to IRAs and 401ks for 40 years with zero cash flow. I’ll agree I think they are bad investments. But people still do it. )

    One of the best investments I ever made had negative $800/mo cash flow. If you NEED to buy for cash flow, you are NOT ready to invest in real estate. You are one failed AC/roof/6 month eviction from going bankrupt. Good luck with your purchase. 

    3Reply
  • Noah BaconPro Member
    Property Manager · Lansdale, PA · Member since 2021 · 826 posts · 1k+ votes
    2y

    I believe value add is still on the table, and an even more enticing option now with rates from the looks of it on a downward trajectory. Many small multifamilies in markets that I either invest in or have considered investing in recently are typically built in the 1980s and earlier which are in need of major upgrades. 

    All four of the options you outline I believe work in today's market and with the ability to refinance after a rehab, you may be able to break even or cash flow with an improved equity position. 

    It is certainly market dependent, but there are deals out there that will cash flow right out the gate and some that will take time to hit your metrics. It's all about your time horizon and if you are more focused on immediate gains, or long term appreciation. 

    2Reply
  • Masyn Grant Barney
    OP
    Real Estate Agent · Spanish Fork, UT · Member since 2020 · 79 posts · 56 votes
    2y

    @Bill B., Great points! Maybe I should have added something to specify I was talking about making a property cashflow and specifically the Utah market. It is also true that many investors don't care about cashflow. At the end of the day, I was looking to generate discussion just like this so thanks for the comment! 

    Value add, rent by the room, an appreciation play, and a tax play are all potentially viable paths to making one of these deals work for an investor. 

    1Reply
  • Evan Polaski
    Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
    2y

    @Masyn Grant Barney, what does "making them work" mean?  All of these are possibilities, and all have their upsides and downsides.

    But, at the end of the day, if you are thinking of this purely as an investment, particularly passively, it is not the highest yielding investment.  If you treat it like a business that you are running, you can make outsized returns, but the same can be said about launching your own real estate brokerage and building that business, or launching a tech company, etc.  But now you are not talking about real estate as an investment, but rather a vehicle which you are building a business around.

    And lastly, we are still at historically high prices.  Prices will remain high as long as a lot of people are interested in buying real estate.  When demand is high, your returns will be lower.  And at the end of the day, if you are wanting to buy as an investment, the best investors are rarely in a rush.  They will have formed a long-term outlook of where things are moving, set a strike price based on those outlooks, and move when it is right.  If you think rents will continue growing and values will continue growing, then buying before rates are cut could be good.  But if you think there is a large recession coming, than you sit tight, continue saving so you can buy more when the timing is right, and hope your insights are correct on where the market moves.

    2Reply
  • Masyn Grant Barney
    OP
    Real Estate Agent · Spanish Fork, UT · Member since 2020 · 79 posts · 56 votes
    2y
    Quote from @Evan Polaski:

    @Masyn Grant Barney, what does "making them work" mean?  All of these are possibilities, and all have their upsides and downsides.

    But, at the end of the day, if you are thinking of this purely as an investment, particularly passively, it is not the highest yielding investment.  If you treat it like a business that you are running, you can make outsized returns, but the same can be said about launching your own real estate brokerage and building that business, or launching a tech company, etc.  But now you are not talking about real estate as an investment, but rather a vehicle which you are building a business around.

    And lastly, we are still at historically high prices.  Prices will remain high as long as a lot of people are interested in buying real estate.  When demand is high, your returns will be lower.  And at the end of the day, if you are wanting to buy as an investment, the best investors are rarely in a rush.  They will have formed a long-term outlook of where things are moving, set a strike price based on those outlooks, and move when it is right.  If you think rents will continue growing and values will continue growing, then buying before rates are cut could be good.  But if you think there is a large recession coming, than you sit tight, continue saving so you can buy more when the timing is right, and hope your insights are correct on where the market moves.


     Great comment. See my comment above yours for a better explanation of what I was talking about. The TLDR is cashflow in the Utah market. But everyone has made some great points about how else they could "work". 

    0Reply
  • Greg Kasmer
    Rental Property Investor · Philadelphia, PA · Member since 2021 · 774 posts · 501 votes
    2y
    Quote from @Masyn Grant Barney:

    @Greg Kasmer, interesting. So are you saying you bought it at a discounted price because rents were low? If not, how is it an advantage to buy with low rents if the property is being valued based on comps? 


     Masyn - You're correct. The value of the building was determined by comps, so increasing profitability of the building wouldn't increase the value like a true multifamily. However, knowing the rents were below market did give me a clear indication that there is "upside" in the deal, so overtime I thought the cashflow number would be beneficial. The "As Is" cash flow was really minimal ($100-$200), but after renovating and increasing the rents (with new tenants) I'll probably be around $1,000-$1,200 for the 4-unit building. That cash flow meets my investing criteria/target.

    4Reply
  • Masyn Grant Barney
    OP
    Real Estate Agent · Spanish Fork, UT · Member since 2020 · 79 posts · 56 votes
    2y

    @Greg Kasmer, I love it! Yeah I would take that cashflow every single day. Here in UT without a significant downpayment (usually 30%+) you aren't even breaking even on any multifamily. Unless there is a heavy value add aspect, seller financing, assumable loan, or some other "deal". We obviously do have some nice appreciation and an incredible economy that makes our area good for other reasons. 

    I have found that lots of newish investors are trying to buy small multifamily based on cap rates and I personally think it's a waste of time. Large multifamily trades on cap rates and is valued by rents, but small multifamily gets comped and lower rents usually don't get you a better price. I love seeing investors that understand that dynamic with small multifamily. 

    1Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    2y
    Quote from @Masyn Grant Barney:

    @Greg Kasmer, I love it! Yeah I would take that cashflow every single day. Here in UT without a significant downpayment (usually 30%+) you aren't even breaking even on any multifamily. Unless there is a heavy value add aspect, seller financing, assumable loan, or some other "deal". We obviously do have some nice appreciation and an incredible economy that makes our area good for other reasons. 

    I have found that lots of newish investors are trying to buy small multifamily based on cap rates and I personally think it's a waste of time. Large multifamily trades on cap rates and is valued by rents, but small multifamily gets comped and lower rents usually don't get you a better price. I love seeing investors that understand that dynamic with small multifamily. 


     My last purchase had many of these strategies:

    - It was purchased below value by negotiation.  it was off market purchase.  Whatever it appraised for, I would pay a percentage of the appraised value. 
    - it had value adds. 
    - it was in a high rent growth market.  This plays into how long to have positive cash flow. 

    It is worth ~$700k above my costs including the rehab costs and today it has positive cash flow at my conservative underwriting.  

    There are a lot of ways to make money in RE.  

    Good luck

    1Reply
  • John Canwell
    Member since 2024 · 2 posts · 7 votes
    2y

    Seems to this old dog that we may never return to the ROIs (10-20+%) of 25-30 years ago for several reasons:

    1)There’s been and continues to be too much hype/content about real estate as an investment and much of it started when Rich Dad came out. Today there’s a virtual industry around it - such as this website. 
    2) It’s too easy to buy a small m/f property. Lower down payments (was once 30% down) and more flexibility from the lenders. 
    3) Competition from private equity and others. Too much capital chasing too little product.
    4) The internet makes it easier to find and sell properties.  Before realtor.com, being local and an agent gave you a big advantage over passive investors. 

    My belief is that all this leads investors to take mediocre or poor deals, some of which will go bad in a deep 1980s type recession - should we ever see one again.  
    Oh well. 




    1Reply
  • Diya Wahi
    Real Estate Agent · Santa Ana, CA · Member since 2016 · 56 posts · 32 votes
    2y

    I think if the market makes sense, you can also try mid term rentals or college student housing. I live near Chapman University and Children's Hospital of Orange County. I think both institutions offer unique opportunities to better than average cash flow with the right purchase and strategy. 

    1Reply
  • Justin Moy
    Investor · Kansas City, MO · Member since 2020 · 400 posts · 278 votes
    2y

    A lot of people are feeling the squeeze of cash flow right now at least for desirable markets. If you don't want to have roommates it's getting tough, for most of my investors who are looking for heavier cash flows I've been recommending doing furnished rentals (short or mid term), looking at higher cash flow commercial deals like NNN or other cash flow focused syndications/funds, or investing in a debt position if cash flow is the biggest goal.

    More people are also pushing towards tertiary markets or looking for properties that have some ADU potential to juice their cashflow opportunities

    1Reply
  • Ben Azubuike
    Member since 2024 · 5 posts · 4 votes
    2y

    I'd like to get the thoughts of folks on this thread . . . what's a quick and dirty way to determine the ARV of a 2-4 unit multifamily?
    Mine is actually a 2-unit (2/1 on each side) and when looking at comps, I'm torn between focusing on only 2-unit multis or is it okay to consider 4/2 SFHs as well? Or should I go the CAP rate route?

    1Reply
  • Masyn Grant Barney
    OP
    Real Estate Agent · Spanish Fork, UT · Member since 2020 · 79 posts · 56 votes
    2y

    I would only compare to 2 unit multis

    0Reply
  • Drago Stanimirovic
    New to Real Estate · Miami, FL · Member since 2024 · 1k+ posts · 457 votes
    2y

    Hi Masyn,

    You've made a great breakdown of the key strategies to make small multifamily properties (2-4 units) work in today's market. I agree with all your points, and I'll add some additional thoughts that might help.

    5. Value-Add Opportunities

    If you're able to buy a property that needs some renovation or cosmetic upgrades, you can increase rents after making improvements. This "forced appreciation" helps boost the property's value, leading to better cash flow or equity you can leverage down the line. It may also make your property more attractive for refinancing at a lower rate or selling at a profit.

    6. Partnerships or Syndications

    Partnering with other investors could help with the down payment and lower your financial risk. In return, you split the profits. You may find a partner who is more willing to put in a larger capital injection if they get a better CoC return or equity stake. This can help you get into a property that otherwise would be too capital-intensive for a single investor.

    7. Government Programs and Subsidies

    You might qualify for programs that offer incentives, especially if you're investing in areas targeted for development or revitalization. For example, FHA loans allow you to buy a multifamily property with as little as 3.5% down if you're living in one of the units. Some areas may also offer tax incentives or grants for certain kinds of development, lowering your overall costs.

    8. Rent-by-the-Room (Long-Term)

    If local regulations allow it, renting out units by the room might generate more income than traditional long-term leases. This can be particularly appealing in areas with a strong demand for affordable housing or student populations.

    9. Creative Financing Structures

    There’s also the possibility of lease-option or lease-purchase agreements, which allow you to control a property now and buy later, often with part of the rent going toward the down payment. While not as common, these deals are possible in unique situations, especially with motivated sellers.

    In this high-interest, low-inventory market, it's all about getting creative while managing your risk and time commitment. If you're planning to expand into this space, we at CTF Funding can help explore financing options tailored to your needs. Let me know if you'd like to discuss your strategy further!

    1Reply
  • Rayhan Muktader
    Member since 2024 · 1 post · 1 vote
    2y

    Curious, how do you research if a multi-family will perform well as a short term rental?

    1Reply
  • Masyn Grant Barney
    OP
    Real Estate Agent · Spanish Fork, UT · Member since 2020 · 79 posts · 56 votes
    2y
    Quote from @Rayhan Muktader:

    Curious, how do you research if a multi-family will perform well as a short term rental?


    airdna.co is the best website for getting STR data

    0Reply
  • Zack SlankerPro Member
    Member since 2024 · 20 posts · 14 votes
    2y

    @Masyn Grant Barney Would you say this is the case for all markets today? I have been thinking about my multifamily strategy using the VA loan in Colorado Springs, and the numbers just aren't working. We have been considering looking into other markets, possibly moving out of state. Thanks for sharing this info! I found it really helpful.

    2Reply
  • Masyn Grant Barney
    OP
    Real Estate Agent · Spanish Fork, UT · Member since 2020 · 79 posts · 56 votes
    2y
    Quote from @Zack Slanker:

    @Masyn Grant Barney Would you say this is the case for all markets today? I have been thinking about my multifamily strategy using the VA loan in Colorado Springs, and the numbers just aren't working. We have been considering looking into other markets, possibly moving out of state. Thanks for sharing this info! I found it really helpful.


     No I would not say this is the case anywhere. However, Colorado Springs is quite similar in fundamentals to Utah so I’d say it most likely applies in your area. Cashflow is scarce and much more difficult to find. 

    I find it quite common that many people listen to the numbers that were thrown out on early episodes of BP and assume those same numbers are realistic today, and that’s just not the case. 

    Markets change and what works in one market doesn’t always work in the next. 

    1Reply
  • Samuel DioufBusiness Member
    Real Estate Agent · Columbus & Cleveland, OH · Member since 2023 · 1k+ posts · 1k+ votes
    2y
    Quote from @Zack Slanker:

    @Masyn Grant Barney Would you say this is the case for all markets today? I have been thinking about my multifamily strategy using the VA loan in Colorado Springs, and the numbers just aren't working. We have been considering looking into other markets, possibly moving out of state. Thanks for sharing this info! I found it really helpful.

     Hey Meghan, the numbers still work in a lot of Midwestern states like Ohio. Even in appreciating cities like Columbus you can still buy duplexes and quads that reach the 1% rule. 

    If you’re looking to invest long distance, I definitely recommend building your core-4 team. This team consists of an Investor Focused Agent, Lender, Contractor, and PM.

    Read this article on the "core 4". It explains the team that you should develop to have a strong foundation under you while investing remotely.

    https://www.biggerpockets.com/blog/core-four-real-estate-team

    [email protected]614-662-1652
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    2Reply
  • Zack SlankerPro Member
    Member since 2024 · 20 posts · 14 votes
    2y
    Quote from @Samuel Diouf:
    Quote from @Zack Slanker:

    @Masyn Grant Barney Would you say this is the case for all markets today? I have been thinking about my multifamily strategy using the VA loan in Colorado Springs, and the numbers just aren't working. We have been considering looking into other markets, possibly moving out of state. Thanks for sharing this info! I found it really helpful.

     Hey Meghan, the numbers still work in a lot of Midwestern states like Ohio. Even in appreciating cities like Columbus you can still buy duplexes and quads that reach the 1% rule. 

    If you’re looking to invest long distance, I definitely recommend building your core-4 team. This team consists of an Investor Focused Agent, Lender, Contractor, and PM.

    Read this article on the "core 4". It explains the team that you should develop to have a strong foundation under you while investing remotely.

    https://www.biggerpockets.com/blog/core-four-real-estate-team

     Thank you @Samuel Diouf! I am originally from Ohio and have considered moving back to invest in some areas that I know would appreciate and cash-flow. I have also considered the long-distance option, but my first goal is to utilize my VA loan, which means I have to live within the multifamily property until I have met certain criteria to move on. I really appreciate the article as long-term investing will be something that I plan for in the future.

    3Reply
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