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BlogArrowLandlording & Rental PropertiesArrowThis Is the Sweet Spot for Breaking Into Multifamily Investing
Landlording & Rental Properties Dec 24, 2020

This Is the Sweet Spot for Breaking Into Multifamily Investing

Brandon Turner
Expertise: Landlording & Rental Properties, Personal Development, Real Estate News & Commentary, Business Management, Flipping Houses, Mortgages & Creative Financing, Real Estate Deal Analysis & Advice, Real Estate Wholesaling, Personal Finance, Real Estate Marketing, AskBP, Real Estate Investing Basics
594 Articles Written
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There are a lot of people looking for the same type of deals—the value-add, the larger apartments that are going to make them a bunch of money. That said, I like to think that there’s a sweet spot in real estate, especially if you’re just trying to get into multifamily.

There are a lot of people out there looking for everything. But in general, there’s a lot of the single-family rental people out there that are buying houses, and the mom-and-pops are buying houses, and couples are buying a house. Then there are house hackers buying the duplex, triplex, fourplex.

The 5-30 range or 5-40 range is typically smaller than would attract the professionals. I don’t buy 30-unit mobile home parks. I don’t buy 30-unit apartment complexes. It’s too small to generate the acquisition fees and the overhead that I need for my business. And so I don’t look for that. So, you’re not competing on that level against me.

Related: 5 Reasons the Fourplex Is the Perfect House Hack

And eventually when you get good enough, then you can go compete with the people who have big teams, like me. And you can compete with us on the $50 million properties.

But there’s a sweet spot in that smaller 5-unit, 10-unit, 15-, 20-, 25-, 30-unit space. And you could build up some good financial freedom off just buying a few of those.

I would say they are more difficult than the bigger deals. They require more work than buying a 100-unit. The management isn’t baked into the numbers necessarily. They’re largely mom-and-pop managed (and oftentimes really poorly managed).

But you can find some incredible deals there.

The Idea In Action

I’ll give you a true story. I bought a 24-unit in Cincinnati two years ago. It lasted a year, and I finally gave up and sold it to the agent who brought it to me originally. I sold it for about what I bought it for.

I  just couldn’t make money on it. And it was in Cincinnati, and I was in Maui. Granted, I had a lot of other stuff going on, so I wasn’t focused at all on it. But by itself, it did not run. When I left it by itself, it did not make money.

If I really focused on it and put my laser beam on it, I could drive it to make money by really working my manager hard and making sure that they were paying attention to everything and following up continually. But I didn’t have the time for that.

But you know what? I sold it to the agent who ended up bringing it to me, and that agent has almost doubled the value of that property in the past year. He cleaned it up. He raised the rent dramatically. He kicked out a bunch of the riffraff that was there. And he has completely turned that thing around.

Related: 13 Items to Check When Performing Due Diligence on Multifamily Properties

He’s going to make a ton of money—he’s already making a ton of cash flow off of it. Congratulations to him. And I don’t feel bad about that at all. It just illustrates the simple truth: That level of property requires a certain level of management that I was not willing to put in. And because of that, I failed at that investment (or at least broke even).

After I sold it, I ended up using the money and bought a triplex here in Maui. This is awesome, because here I can dedicate my time and I have systems and people in place to manage that property. Plus, it’s way smaller, so it’s easier to manage.

The bottom line is you can still make really good money in that range of 5-40 doors. It requires a different level of work, and so if you can become an expert at it, I think that’s a great way to break into the multifamily space.

Get a bunch of those! Get really good at that in a certain market. Then, you’ll have the knowledge, credibility, money, and experience to be able to take on those larger multifamilies that will be your golden ticket later on. 

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Have you broken into multifamily or are you still working on it?

Tell us how you got started (or plan to) in the comments.

By Brandon Turner
Brandon Turner is an active real estate investor, entrepreneur, writer, and co-host of the BiggerPockets Podcast. He is a nationally recognized leader in the real estate education space and has taught millions of people how to find, finance, and manage real estate investments. Brandon began buying rental properties and flipping houses at age 21, discovering he didn’t need to work 40 years at a corporate job to have “the good life.” Today, Brandon is the managing member at Open Door Capital. With nearly 300 units across four states under his belt, he continues to invest in real estate while also showing others the power and impact of financial freedom.
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13 Replies
    Bryce Collins from Cincinnati, OH
    Replied 2 months ago
    Spot on. Recently shifted my focus from resi multi-fam due to all the retail investors in the space. Still some solid 5-10 unit buildings here in Cincinnati that are reasonably priced that will still flow 10%+ conservatively.

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    Ikenna Okoye Homeowner from Houston
    Replied 2 months ago
    Thanks for posting! This is the exact plan I will be following. Hunting for these smaller multi-family units is something I'm always on the market for. It's such a bang for your buck especially here in Houston where if you look hard enough, you can find them for the same price as SF properties in decent neighborhoods. Scaling up to value add and larger apartments is definitely a great goal (also my goal) to shoot for.

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    Austin Jones Real Estate Agent from Houston, TX
    Replied 2 months ago
    Hi Ikenna, I have a few pocket listings in the South part of Houston. Please reach out

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    Stephen VanMeter Realtor from Vero Beach FL
    Replied 2 months ago
    Agreed! Experience seems to be everything in multifamily. I’ve been making the transition from residential to larger multi family but I have yet to build the right relationships. I’ve been finding smaller multi-family deals and it’s only a matter of time before I find something I will buy in one of my two target markets, Charlotte or Treasure Coast Florida and build some much needed experience.

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    Harshil Swaminarayan Investor from Champaign- Urbana IL
    Replied 2 months ago
    Love it! Thanks Brandon. Started out with 3 units in Louisville, Planning to implement this plan and scaling up in the Louisville KY Market.
    Brandon Fuhrman from Louisville, KY
    Replied about 2 months ago
    Where are your units located in Louisville if I may ask?

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    Greg Shoss Rental Property Investor from Denver, Colorado
    Replied about 2 months ago
    Interesting. No, I don’t have the capital or net worth to get into real multi-family just yet. But good to know that the smaller multi-family has some pain points that keep the bigger sharks away leaving some scraps for us smaller investors to chew and grow on :)

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    Carlos Ptriawan
    Replied about 2 months ago
    For MF min 10 unit, many commercial lenders require a 500k minimum loan with 30-35%down. That's approximately $800K MF. If it's 5 units, to reach 1 R/V, each unit must be rented for $1333/mo. Is my calculation about right? I'm not talking about NOI yet.

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    Carlos Ptriawan
    Replied about 2 months ago
    Also, what's the typical Property Management fee structure when managing a 5-20 unit apartment? Is it different from res. PM fee structure? I find a hard time to find out this information. There's also seems hidden maintenance cost (snow removal, landscaping) that seems to affect the NOI a lot. I look at some NOI calculations from crexi and loopnet and the number doesn't seem so appealing?

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    Nicholas B. from Las Vegas, NV
    Replied about 2 months ago
    Very true, the smaller MF properties are very often poorly managed and are undervalued as far as rents. My entire portfolio consists of these deals, 4-20 unit properties, many off-market deals and I tend to focus on a few specific areas to help with economy of scale. You also aren’t competing with the larger investors and are able to find higher cap rate deals. Most of my purchases turn into an 8%-10% cap rate within a year once fully stabilized, and fully stabilized for me is total rehab inside and out. C Class properties brought up to B Class standards and tenancies.

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    Nikita Herrod
    Replied about 2 months ago
    I'm a week away from closing in my first multi-family property.
    Michael Barido from Kaysville, UT
    Replied about 2 months ago
    Great job Nikita!

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    Shirley Wen Rental Property Investor from San Francisco Bay Area
    Replied about 2 months ago
    Good read, thanks for sharing. I just bought my first out of state duplex, now I need to do major research on a good property management companies since I can't personally be there myself. If anyone has recommendations in the San Antonio area I'd love to hear about it.

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