Is there value in building a portfolio of 2-4plexes?

[Eugenia K.]

I am actively on the market for 2-4plexes in my area, with the intent of 1031'ing several of these into an apartment building (or some other commercial property) someday. I'm wondering what advantages there are in acquiring a portfolio of these smaller MFH (aside from serving as a warm up to make the switch to commercial), and if there's a case to be made to never make the switch to something larger?

One clear advantage is the relatively cheaper financing and availability to owner occupy. I've also heard second-hand that rent control is usually imposed on larger landlords. However, I expect that managing several addresses will result in more tenant/property manager headache and lower economies of scale on expenses. 

[Joseph Cacciapaglia]

I have several investors that stick with fourplexes long past the time that they could move up to small apartment properties. Here are a few of the reasons I've heard from them:

1. Better Financing - It's hard to pass up the residential loans, at least until both you and your spouse have both hit the 10 loan limit. The 5+ unit properties can be difficult to finance until your deals are large enough for agency debt.
2. More Availability - It's much easier to find a fourplex in your target market than a small apartment property. It's often easier to pick up several fourplexes in the same time it would take to find one 10 unit property. 
3. Diversification - You can own several fourplexes spread across your target market or across several markets as opposed to putting more eggs in fewer baskets.
4. Liquidity - It's quicker and easier to both sell and refinance a fourplex than a larger apartment property.
5. Appreciation - Many investors believe that fourplexes appreciate faster than larger apartment properties. I'm not sure I believe this, but I know many investors do.

I'm actually a big fan of helping clients move to larger properties when it's appropriate. However, there are always several factors to consider when making that decision.