Small Multifamily Properties For Large Returns

Many real estate investors gloss over some of the most profitable real estate investment properties simply because they don’t understand them. The either hit the single family home route or just go big, but many times some of the most profitable properties are right in the middle. You don’t have to get the 50, 100, or 150 unit properties to start reaping nice return.

Smaller multifamily properties can be very accessible and very profitable, they are essentially everywhere, they are easier to purchase and sell for that matter.

So let’s define small and medium multifamily properties. Small would be 2-4 units and would even fit into the realm of residential financing which is often easier to get then commercial money with lower down payment requirements and more lenient rules, enough so that some use the owner occupied option to purchase them with down-payments as low as 3.5% with an FHA loan or in some cases with 0 down in the case of VA loan.  Medium sized properties would be 5-50 units and maybe a bit more, but not much.

The advantages of investing in smaller multifamily properties include:

• Small multifamily properties have less competition than larger properties. Buying smaller properties means you usually avoid institutional buyers who are more apt to pay a higher premium for a property than individual investors.

• Small multifamily properties often have a higher cash on cash return. Often you can purchase smaller real estate that has a higher overall IRR and cash on cash return.

• These properties require less equity to purchase. Because they are smaller and often considered just larger home you can buy them with a lower equity input. 25-30% is common and 10% is also available in some cases. You don’t need millions of dollars to buy them so they become much more accessible to those just starting off or expanding their portfolio.

• Often these properties provide more of a profit per unit then larger properties.

• There are more of these to choose from. It depends on your market and the market, but there are many more smaller properties to choose from then larger ones and they can be closer to where you are too.

• Because these properties are easier to purchase and own they are attractive to more investors so your pool of buyers is larger allowing you to implement some strategies to sell for more.

• They are commonly managed or mis-managed by less sophisticated investors who are afraid to raise rents or don’t track the market or just don’t know how to manage properly. This presents a great opportunity for repositioning and management improvements to increase income and return.