An investor moved from four scattered single-family rentals to one sixplex. Better cash flow per door, one roof instead of four, and easier financing than expected. The property qualified for a DSCR loan based purely on rent rolls – no tax returns, no W-2s, just the numbers the building produced.
Small multifamily (2-20 units) sits in a sweet spot. Less competition than single-family, more control than large commercial, and financing options that work for investors who write off everything come tax season.
The 2–4 unit market has seen less of a price drop than larger properties because it benefits from 30-year fixed financing. While the 5+ unit segment absorbed over 550,000 new Class A units in 2024, smaller multifamily assets haven’t faced the same oversupply pressures.
Price per door tends to be lower than single-family in the same neighborhood. Unlike single-family homes valued on comps, multifamily properties are valued on the income they produce. That means operational improvements can significantly increase property value in ways single-family can’t match.
DSCR loans qualify investors based on property performance, not personal income. For multifamily properties, lenders typically look for a debt service coverage ratio between 1.20x and 1.25x. Some programs will consider ratios as low as 1.0x, but expect trade-offs like larger down payments or higher rates.
A sixplex generating $6,000 monthly with a $4,500 mortgage payment has a 1.33x DSCR. That qualifies without showing a single tax return. Properties with 2-4 units can use residential financing or DSCR loans, and buildings with 5-30 units increasingly qualify for DSCR programs designed specifically for this segment.
Operating expenses on well-managed small multifamily typically run 35-45% of gross income. That includes property management, maintenance, insurance, taxes, and reserves. Properties below 35% are highly efficient (often newer buildings), while those above 50% may signal high maintenance needs or inefficiencies.
Insurance is the biggest driver of rising operating expenses. Multifamily insurance costs rose 22.7% year-over-year nationally, and as high as 35.7% in the Southeast. Get actual insurance quotes early and factor realistic costs into your underwriting.
Occupancy matters more than in single-family. One vacancy in a fourplex is 25% of your income, not 100%. Underwrite conservatively using 75% of market rent to account for vacancy and management.
This space attracts investors graduating from single-family homes who want scale without complexity. Managing one 8-unit building – one roof, one tax bill, one insurance policy, one set of contractors – is far more cost-effective than managing eight scattered houses.
A small multifamily isn’t just bigger investing. It’s smarter investing. You’re buying income streams, not houses. For investors ready to scale in 2026, this is the most efficient path forward.
Apply in minutes. Close your loan quickly.
