Multifamily real estate investing is a great niche to get into in real estate. Many investors come to multifamily from the single family space. They were accidental landlords and realized how great real estate is, but they also realized how they could scale much more quickly with multifamily.
You first need to know how multifamily sizes are categorized. Have a look at my previous post first. We look at them by unit number, not square footage or bedrooms. The gist is that small is 2-4 units. Medium is 5 units to whatever needs an onsite manager. Usually this is 80 to 100 units. Large is above this. Simple, right? Read below to find the type right for you.
This is the size for anyone who wants to house-hack. That means living in one unit and renting out the others. This size allows you to get an FHA loan for low down payment and still be a landlord. This is fantastic for new real estate investors. You can’t do it for 5 units and above. If you are just starting out and don’t have a lot of cash, small multifamily is the one for you.
This is the middle child of the multifamily space. These are typically too small for the big guys and too big for the little guys. This is the next step that investors typically take. They usually have some experience in real estate and have some cash for a 20-25% down payment saved up. They aren’t ready to be hiring on-site managers and probably can’t get a loan for the large properties. This is where I started in my multifamily journey – an 8-plex. It has been great and I still own it. If you are new, but have the cash and credit with the bank, this is the level for you.
This is the endgame for multifamily investors. These are the big properties, mostly of the size that the owner never sees all the units. Local and regional banks usually don’t have the financials or interest in offering loans for this type, so you need to have an institutional loan. These are the ones backed by Fannie Mae et. al. These properties require prior experience and usually recruitment of investors in a joint venture or syndication. This is what I’m doing now and it’s great, but probably not what you will do when starting out.
The final category I’ll talk about today is usually a building with retail spaces on the lower level and multifamily apartments in the upper levels. These can be smaller, so newer investors might be able to put together the funds for this. However, most of these will be downtown in the city and have a higher price. I like mixed use because it allows the owner to synergize having tenants and retail space at which they would like to shop. Who wouldn’t want to grab that ice cream cone before going up to their room?
There’s bound to be one area in multifamily that is for you. Let me know which you choose!