Multifamily Investing 101: Duplexes, Triplexes, and Fourplexes

As a contractor and real estate investor, I've bought and renovated dozens of properties. Small multifamily (2–4 units) is where most investors should start. Here's why, and the numbers you need to run the deal.

Why Multifamily Beats Single-Family Rentals

One mortgage, multiple incomes. A duplex is one property with two cash flows. You're not dependent on one tenant or one lease renewal. If one unit sits vacant for two months, the other generates income.

Better loan terms. Multifamily loans (especially FHA) come with lower down payments and interest rates than single-family mortgages. You can buy a duplex with 3.5% down; most single-family rentals require 20% or more.

Economies of scale. One roof, one HVAC system (mostly), one property manager. Your maintenance and management costs scale slower than your income.

Appraisal based on income. Multifamily appraisals use the income approach—they value your property based on what it generates, not just comparable sales. A duplex in a crummy area that produces 3,000 dollars monthly will appraise well because the income supports it. Single-family appraisals rely heavily on comps.

Financing rehabs is easier. Lenders will often let you refinance into a "rental" mortgage after you stabilize a multifamily property post-rehab. Some will even lend on the renovation itself if your numbers work.

The Deal Analysis: DSCR and Per-Door Cash Flow

Before you make an offer, you need two numbers:

DSCR (Debt Service Coverage Ratio)

• Formula: Annual NOI ÷ Annual Debt Service
• NOI = Gross Income − Operating Expenses (NOT including debt service)
• Most lenders want 1.20 minimum; 1.10 is tight; anything below 1.00 and the property doesn't pay for itself

Per-Door Cash Flow

• Formula: Monthly Cash Flow ÷ Number of Units
• A duplex making 300 dollars monthly = 150 dollars per door
• A fourplex making 1,200 dollars = 300 dollars per door
• Use this to compare deals across different sizes

Multifamily Analysis Example: Duplex

Purchase Price: $400,000 Down Payment (20%): $80,000 Loan Amount: $320,000 at 6.5% over 30 years Monthly PITI: $2,030

Income and Expenses

DSCR = 1,610 ÷ 2,030 = 0.79

This property doesn't cash flow—you subsidize it monthly. Reject the deal unless you expect heavy appreciation or planned a rehab to increase rents.

FHA House-Hacking

If you're buying your first multifamily property, FHA is your friend. You can put down as little as 3.5% on a duplex, triplex, or fourplex as long as you occupy one unit as your primary residence for at least one year.

The Math:

• 4-unit property: $300,000 purchase
• FHA down payment (3.5%): $10,500
• Closing costs (3–5%): $9,000–$15,000
• Total out of pocket: roughly $20,000

Your three rental units generate income that covers most or all of your mortgage, property taxes, and insurance. Meanwhile, you live for free and build equity. After one year, you can move out and keep the property as a rental, or refinance into a conventional loan.

Common Mistakes I See

Underestimating expenses. New investors assume 25–30% expense ratios. Reality: 35–45% is more typical once you account for vacancy, repairs, property manager (or your time), insurance increases, and unexpected expenses. Budget high.

Ignoring tenant quality. A 50 dollar difference in rent isn't worth a difficult tenant or frequent turnover. Vet carefully. Run credit and criminal background checks. Call prior landlords.

Overestimating rent growth. If rents grew 5% in the past, don't assume they'll keep doing it. Use 2–3% annual growth in your projections. If your deal only works with aggressive rent assumptions, it's fragile.

Deferred maintenance. I've bought properties that looked fine but had hidden roof issues, bad plumbing, or failing HVAC. Get a detailed inspection. Budget 10–15% of purchase price for repairs.

Borrowing too much. Just because you can get a DSCR of 1.10 doesn't mean you should. The smaller the DSCR, the tighter your margins. One unexpected 5,000 dollar expense or two-month vacancy and you're in the red. Target 1.25+ if you want cushion.

Financing Differences

FHA Loans (3–3.5% down, 1–4 units, owner-occupied):

• Faster approval, lower rates, more forgiving underwriting
• Limited to properties you'll occupy
• Works great for house-hacking

Conventional Loans (20–25% down, typically 2–4 units):

• Faster processing than FHA, but stricter credit/income requirements
• Available for non-owner-occupied (pure rental)
• Better rates if you have strong financials

Portfolio Loans (30–40% down, no limits on unit count):

• Held by individual lenders, not sold on secondary market
• Faster underwriting, flexible documentation
• Higher rates than conventional, but easier approval if your business is odd or your credit is mottled

Per-Door Cash Flow Benchmark

What's "good" per-door cash flow?

• Below $100/month per door: Your cash flow is weak. Deal only works if you're banking on appreciation or tax benefits.
• 100–250 dollars/month per door: Solid deal. You're building equity and generating income.
• Over $250/month per door: Strong deal. You're compressing cap rates or you found a value-add opportunity.

These benchmarks vary by market—high-cost coastal areas rarely hit 250 dollars per door on stabilized properties.

Property Management

Self-manage: You save 10% of rent (typical PM fee), but you handle tenant calls, lease violations, maintenance scheduling at 2 a.m. Realistic for a 1–2 unit portfolio; brutal past that.

Professional PM: Costs 8–12% of rent, plus 50–150 dollars per maintenance call. Worth it for 3+ units.

Co-host/Hybrid: Some investors partner with a leasing agent who finds tenants and manages turnover; you handle maintenance. Saves money if you're handy.

Related Links

• Short-Term Rental Income vs. LTR
• Exterior Siding: 20-Year TCO Comparison
• Window Replacement and Energy Savings