The Case for Small Multifamily: Duplex, Triplex, Fourplex

[Gia Hermosillo]

Small multifamily is often the next step when investors want to improve cash flow, stabilize operations across multiple units, and build a more resilient income stream.

SFH vs. Multifamily: Advantages, Tradeoffs, and How to Choose the Right Asset for Your Strategy

One of the most important decisions new and intermediate investors face is whether to focus on single-family homes (SFHs) or step into small multifamily investments—duplexes, triplexes, and fourplexes. Both asset types can build wealth, but they behave differently, require different levels of operational resilience, and serve different phases of an investor’s long-term strategy.

Understanding how they differ is essential for building a portfolio that supports your risk tolerance, your desired level of involvement, and the cash flow you expect. Below is a practical breakdown from an operator’s perspective, with a focus on stability, scalability, and the realities of long-distance ownership.

The Case for Single-Family Homes

SFHs are often the entry point for self-managing rookies and out-of-state investors. They tend to attract longer-term tenants—often families—who stay for stability, school districts, or neighborhood consistency. This reduced turnover can lower vacancy losses and turnover costs, which directly benefit your net operating income.

Advantages:

1. Simpler Operations:
A single unit means fewer moving parts: one HVAC system, one roof, one set of utilities, one tenant relationship. Maintenance is predictable, planning is easier, and the learning curve is less steep.

2. Larger Tenant Pool:
SFHs appeal to households who value privacy and are willing to care for the property. This lowers behavioral risk and reduces day-to-day management friction.

3. Stronger Appreciation Potential:
Market appreciation for SFHs is largely driven by owner-occupant demand. When markets heat up, SFHs often rise faster in value than small multifamily assets.

4. Lower Purchase Price per Door:
Although a single home can feel expensive relative to a duplex or triplex, each “door” in a small multifamily property may cost significantly more in competitive investor-dense markets. SFHs often provide better entry pricing for new buyers.

Tradeoffs:

1. One Vacancy = 100% Vacancy:
This is the biggest operational weakness. If your only unit goes vacant, every cost falls back on you—PITI, utilities, lawn, turnover, repairs, and make-ready.

2. Limited Cash Flow:
SFHs rarely produce the cash flow that small multifamily units offer. Cash flow exists, but it’s often modest relative to acquisition cost.

3. Scaling Challenges:
A portfolio of SFHs grows slowly. Each acquisition requires its own loan, down payment, inspection, and management setup. This makes scaling labor-intensive.

Advantages:

1. Partial Vacancy Still Produces Income:
A duplex with one vacant unit is only 50% vacant. A triplex or fourplex cushions vacancy even further. This dramatically stabilizes monthly cash flow.

2. Better Cash Flow per Dollar Deployed:
Multiple units under one roof spread risk and amplify revenue. Operating expenses generally scale more efficiently, improving returns.

3. Operational Efficiency:
One roof, one foundation, one lawn service, one sewer line—yet multiple rent checks. The economies of scale reduce labor and management overhead.

4. House Hack Potential:
Owner-occupants can offset their mortgage with neighboring units. This is one of the fastest ways to reduce living expenses while building long-term wealth.

5. Easier to Build a Team:
Property managers, contractors, and lenders often prioritize investors holding multifamily buildings because the volume of work is more predictable.

Tradeoffs:

1. Higher Tenant Turnover:
With smaller units and more transient tenant profiles, turnover can be more frequent. This means more make-readies, leasing cycles, and oversight.

2. More Hands-On:
More units mean more repair requests, more tenant communication, and more operational decisions. For long-distance investors, a reliable management partner is essential.

3. Limited Appreciation Drivers:
Small multifamily valuations are more numbers-driven than emotion-driven. Appreciation is influenced primarily by rent, NOI, and investor demand—not the preferences of owner-occupants.

4. Higher Barrier to Entry:
Although the price per door can be favorable, the total property price is typically higher. Down payments, reserves, and inspections are proportionally larger.

How to Decide Which Is Right for You

Choose a Single-Family Home if:

• You value ease of management and reduced operational complexity.

• You’re investing out of state and want simpler tenant demographics.

• You’re long-term appreciation-focused and comfortable with lower cash flow.

• You prefer stable tenants and less frequent turnover.

Choose Multifamily if:

• Cash flow and income resilience are top priorities.

• You’re comfortable with more moving parts and more frequent communication.

• You plan to scale and want more efficient use of time and capital.

• You want to enter house hacking, or you want a stepping-stone into larger multifamily later.

Ultimately, neither asset class is inherently better. The right choice depends on your goals, your management style, and how you want your portfolio to behave. Both are viable paths—what matters most is alignment with your long-term investing strategy.