how to set up investment group for small multi family investments

Question

Would it be bad practice for a few individuals 3-4 to pool money together to start investing in small multi family places 4plex or smaller?  Has anyone ever done this before?  If so, what’s the best way to structure the deal?  Best way to finance it?  we have one individual whom is single and would live in one of the units.  Should the other two or three just co-sign?

Ricardo R. · Answer

Hey Carlos,

Not a bad idea at all — a small group partnership can absolutely work for a 4-plex or similar, but the setup matters more than the excitement. It’s easy when everyone’s friends… until money, tenants, or taxes get involved. A few key things to think through:

1. Structure it as an LLC (not a handshake).
Form an LLC and have everyone listed as a member based on their contribution — whether that’s cash, credit, or sweat equity. Draft an operating agreement that spells out ownership %, profit splits, who manages what, what happens if someone wants out, and how you’ll handle capital calls or refinance proceeds. That one document saves friendships.

2. Financing options:
If one partner is going to live in a unit, you could potentially use an owner-occupied loan (FHA, VA, or conventional up to 4 units). That gets you way better rates and only ~3.5–5% down. The catch is the occupant must truly live there for at least a year, and the others will likely have to co-sign or be listed as non-occupant co-borrowers.

If no one was living there, you’d need a standard investment loan (20–25% down). For groups, that’s harder because banks prefer one or two borrowers max — that’s where the LLC route plus private lending or portfolio lenders can help.

3. Decide early who’s doing the work.
Who’s finding the property, signing for financing, managing tenants, paying bills, filing taxes? The more clarity you have before closing, the smoother it’ll go. “We’ll all split it” usually ends up meaning one person does 80% of the work.

Bottom line: totally doable — just treat it like a business from day one. LLC + operating agreement + clear roles + one main decision-maker. That’s how you keep it fun and profitable instead of messy; I really hope this help you get it going, I sent you a DM on BP and hope you can assist.

Evan Polaski · Answer

@Carlos Silva, I would talk to an attorney.  There are pros and cons to each structure.

The ones that come to mind: a mortgage, only in one member's name, means they are bearing the liability brunt.  Things go south, it is exclusively their credit on the line.  And while there will likely be agreements between the 3-4 of you, that one person ultimately has the biggest liability on them.  And even when you transfer to an LLC, the mortgage does not move over too, it stays on the one person.  If I were that partner, especially when you only own one asset, I would be asking for more of a share in the partnership to offset those risks.

If I were looking to do something like this, I would form the LLC and outline all member's equity contributions, responsibilities within the partnership, etc.  Outline all the financial arrangements: how are reserves handled, accountant's bill, repairs, etc.  Outline what happens when capital contributions are needed but not all partners can afford to fund them.  Outline how you can remove a member or bring in a new one. So on and so forth.

What should not be handled in that agreement is the fact that one member is living in the property.  That member is a tenant, like anyone else.  They pay rent, which flows to the partnership account to pay bills and build reserves.  When they move out, nothing changes, because a new tenant moves in and pays rent.  All tenants get the same treatment. Security deposits on account, move out checklist and repair requirements, etc.  If the member that is living there is also managing the property, that is handled in the partnership agreement, not the lease, or is a stand alone management contract.  again, this way, if they move out and don't want to manage the property anymore, the partnership can cancel the management contract and hire a new management company without impacting either the lease (if still in place) or the partnership agreement.

Rick Pozos · Answer

This is just like a syndication. BUT you might want to do a partnership or something simpler because setting up syndication paperwork can get real expensive. Look at the logistics and dynamics of syndication.

Chris Forbush · Answer

This is a great post Carlos! Thank you for putting this out there. I'm interested in doing something similar myself with some of my future investments so I appreciate you asking these questions.

I am interested in seeing how this all works out for you, what you learn in the process, and your forthcoming success. It sounds like you're doing it right and I wish you and yours the very best.

Kate Nixon Taylor · Answer

Three-four people all on one deal can get complicated quickly especially if everything isn't communicated clearly, and you don't set up equity and cash flow to match inputs. When you go into business with someone, it's like a marriage. You need to make sure its a good fit, maintain communication, and expect issues/plan for things to come up.

Having one of you live in the property complicates things as well. If you want to use an LLC, conventional financing isn't really going to work. If you want an investment loan, lenders don't want the property owner-occupied. If the person who occupies the property takes on the loan, it will still be on their credit and their personal liability regardless of whether you quit claim the deed into an LLC. Lenders also retain the right to call the note due if ownership changes. I haven't heard of that happening, but it could.

It would make more sense to keep it straight-forward and have all investors securing their own housing separate from the investment and structuring the deal in an LLC. Definitely talk to an attorney who has experience with joint ventures in real estate.

Let's connect! I am happy to answer any other questions you might have.

Cheers, Kate

Garret Rumbea · Answer

@Carlos Silva not bad practice at all. Just make sure you structure it right. I agree with what's been said about setting up an LLC with an operating agreement outlining ownership %, decision rights, and exit terms. If one person's living onsite, that can help with financing, but with 4 units or less, it's usually residential so the loan will be in someone's name. I'd confirm with your lender and attorney. I started out partnering on larger multifamily instead of smaller plexes since the numbers scaled better, stronger cash flow, professional management, and less hands-on work since we just manage the property manager.

Carlos Silva · Answer

When partnering on a small single family investment property, is it best to seek traditional financing and borrow with our personal finances putting 20% down and then transfer the property to a LLC after the purchase?  We are expecting to put 20-25% down, but now sure on what type of loan.  How are banks going to loan money to a new LLC with no history.

Deon White · Answer

This is what we're working on right now. The small deals are awesome but the bigger ones truly move the needle. To do that we're always networking with potential partners so we know who to call when something pops up and we need to raise 200K in equity haha

Shoot me a message we can compare strategies!

Carlos Silva · Answer

So if we have Three investors in the LLC, there is now way to do a conventional or FHA loan?  If purchasing as an investment LLC we will need to look at DSCR or hard money loans?

how to set up investment group for small multi family investments

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