Small Multifamily Only Works 1 of 4 Ways Right Now

[Masyn Grant Barney]

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!

[Greg Kasmer]

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.