Multi-family financing: 2-4 unit investment properties

Multi-family property financing

Properties with 2-4 units occupy a sweet spot in real estate investing. They're still financed with residential loans (no commercial underwriting), but they generate multiple income streams from one property.

Duplexes, triplexes, and fourplexes are popular with everyone from first-time investors to experienced landlords.

Why 2-4 units?

Multiple income streams: If one unit is vacant, you still have income from the others. Reduces risk compared to a single-family rental.

House hacking potential: Live in one unit and rent the others. Primary residence financing, tenant income helps with the mortgage.

Better cash flow math: Multi-family properties often cash flow better per dollar invested than single-family homes.

Residential financing: Up to 4 units, you can use standard residential loans. Once you hit 5+ units, you're in commercial lending territory.

Forced appreciation: Improve the property, raise rents, and increase the property's value. Multi-family values are more directly tied to income than single-family homes.

Financing options

As a primary residence (house hack) If you'll live in one unit, you can use:

• FHA loans: 3.5% down
• VA loans: 0% down (if eligible)
• Conventional loans: 5% down

This is the most accessible way to get into multi-family investing. Live in it for a year, then move out and keep it as a pure investment.

As an investment property If you won't live there:

• Conventional: 20-25% down
• DSCR loans: 20-25% down, qualify on rental income
• Portfolio loans: Varies by lender

Investment property financing requires more down payment but gives you flexibility on where you live.

Loan limits for multi-family

Conforming loan limits are higher for multi-family properties:

Units	2024 Conforming Limit (most areas)
1	$766,550
2	$981,500
3	$1,186,350
4	$1,474,400

High-cost areas (like parts of California and NYC) have even higher limits. If you need more than these amounts, jumbo financing is available.

Using rental income to qualify

Lenders can count the rental income from the units you won't occupy toward your qualifying income. For a triplex where you'll live in one unit:

• Your income + 75% of market rent from two units = qualifying income
• This rental offset often makes multi-family purchases easier to qualify for than single-family homes

For investment properties (not owner-occupied), lenders look at whether the total rent covers the payment.

The house hack strategy

House hacking deserves its own explanation because it's such a powerful wealth-building tool.

How it works:

1. Buy a 2-4 unit property as your primary residence
2. Put down 3.5-5% (instead of 20-25%)
3. Live in one unit, rent the others
4. Tenants pay most (or all) of your mortgage
5. After one year, move out and keep it as a rental
6. Repeat with a new property

Many investors have built significant portfolios starting with house hacks. You're essentially living for free (or close to it) while building equity.

Property analysis

When evaluating multi-family properties, calculate:

Gross rent multiplier (GRM): Purchase price divided by annual rent. Lower is generally better.

Cap rate: Net operating income divided by purchase price. Compare to similar properties in the market.

Cash-on-cash return: Annual cash flow divided by cash invested. Target 8-12% for investment properties.

Per-unit cost: Purchase price divided by number of units. Helpful for comparing different size properties.

Management considerations

Multi-family properties have additional management complexity:

• More tenants means more potential issues
• Common area maintenance
• Utility splitting (or including utilities in rent)
• Tenant dynamics (neighbors in close proximity)

Many investors self-manage 2-4 units successfully. Others prefer property managers, especially as they scale.

Finding multi-family deals

Multi-family properties are competitive, especially in markets where they cash flow well. Strategies for finding deals:

• MLS listings (work with an investor-friendly agent)
• Off-market deals (networking, direct mail)
• Driving for dollars (spotting neglected properties)
• Wholesalers
• Estate sales and probate

The best deals often require some renovation or management improvement.

Getting started

Whether you're house hacking your first duplex or adding a fourplex to your portfolio, the process starts with knowing what you qualify for.

Get pre-qualified to see your financing options, or schedule a call to discuss your multi-family investment plans.