Real Estate Investing 201: Small Multifamily Buildings

Your Options When Investing in Real Estate

Welcome back! In our last post, we discussed a strategy called "House Stacking." This is when you buy a property, live in it for a year or two, then rent it out and purchase a second one. Over time, you can grow your real estate portfolio step by step.

But as you gain experience, you might be ready to move up to larger investments, such as small multi-family properties. These are buildings with 2-4 separate units, or homes, under one roof.

Here’s why investing in a 2-4 unit property can be a smart next step:

Why Consider 2-4 Unit Properties?

1. Easier Financing: Unlike large apartment buildings, small multi-family properties (2-4 units) are still considered residential properties. This means you can finance them with a regular residential mortgage, which is often easier to get approved for.

2. Lower Cost: These properties are generally more affordable than big apartment buildings. While they cost more than single-family homes, they’re much less expensive than large commercial real estate investments.

3. Economies of Scale: A small multi-family property lets you benefit from some of the advantages of larger properties. For example, you usually only need to replace one roof instead of multiple roofs (one for each unit), which can save you money in the long run.

4. Tax Benefits: Like larger properties, you may be able to take advantage of tax deductions related to owning a multi-unit building. These can include deductions for repairs, property management, and depreciation.

Who Should Consider a 2-4 Unit Property?

A 2-4 unit building might be a good fit for you if:

• You’re Flexible With Where You Live: If you don’t mind living in one of the units, you can lower your living costs. Your tenants will pay rent, which can help cover your mortgage.

• You Want to Scale Up: If you’re ready to grow your investment portfolio beyond single-family homes, but don’t want to take on the complexity of commercial loans or larger properties, a small multi-family property is a great next step.

• You Have a Modest Down Payment: While large multi-family properties might require hundreds of thousands of dollars for a down payment, 2-4 unit buildings typically need much less, making them more accessible if you’ve saved a few tens of thousands of dollars.

• You Want Less Competition: Large investment firms are often focused on big multi-family buildings with many units. Because 2-4 unit properties are smaller, they’re less likely to attract large investors, meaning you’ll face less competition when buying.

• You Like Having Choices: Depending on your location, there might be a wide selection of 2-4 unit buildings available, giving you many options to choose from.

Conclusion

There’s no one-size-fits-all approach to real estate investing, but small multi-family properties can offer a great balance of affordability, scalability, and potential for income. I personally own several of these properties, and they’ve been a key part of my journey to building wealth.

If you’re curious to learn more or are ready to take the next step in your real estate investment journey, feel free to give us a call at 815-931-2279!