Multi family key terms and concepts

Multi-Family and Apartment Investing
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Multi family key terms and concepts

Malachi Gutt
Rental Property Investor · Indianapolis · Member since 2024 · 13 posts · 15 votes

Hi all , I want to step into the multi family and apartment building world.
(starting from 2-5 units and going up slowly)
What are the most important concepts and terms to understand when getting started with multi-family property investments?

Thank you very much

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Izaiah Barba
Wholesaler · Portsmouth NH · Member since 2019 · 208 posts · 95 votes
10mo

Hey Malachi, I recommend listening to the Multifamily Wealth Podcast.
It really helped me build a solid foundation on what to look out for in the space. I’d start there and search for episodes that match your specific questions, then watch those to get clear answers and direction.

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  • Abel CurielBusiness Member
    Real Estate Agent · Queens, NY · Member since 2016 · 2k+ posts · 1k+ votes
    10mo
    Quote from @Malachi Gutt:

    Hi all , I want to step into the multi family and apartment building world.
    (starting from 2-5 units and going up slowly)
    What are the most important concepts and terms to understand when getting started with multi-family property investments?

    Thank you very much


    Look at a ton of multifamily listings in your target area(s) and the terms will become clear to you.

    To name a few, you'll want to know the following for each deal you consider:
    - Gross Rental Income
    - Operating Expenses
    - Rent Roll and leases
    - Vacancy
    - Recent Improvements and Capital Expenditures

    As the deal progresses, you'll dive deeper into due diligence i.e. home/building inspection, title review, etc.

    All the best!

    Abel

    REbuild Team - eXp Realty5234 Reviews
    WebsiteView Page
    0Reply
  • Charles Seaman
    Apartment Syndicator · Charleston, SC · Member since 2017 · 519 posts · 631 votes
    10mo

    @Malachi Gutt It's key to understand that it's going to be a learning experience.  Regardless of how much information you consume on the front end, there will be a lot that you won't know until you actually do a deal.  The lessons learned from your first deal will serve as a foundation for any future deals that you do.

    The single most important thing you can do is to make sure that you buy right.  Study the market comps to see what similar properties are trading for and understand the income stream that the property will bring in.

    On the management side, make sure that you treat it like a business.  Don't become friendly with the tenants (you can be nice to them, but never let any relationship get in the way of making a good business decision).  Be strict with enforcing lease provisions.  Make your best effort to screen tenants on the front end, while still realizing that good screening doesn't mean that a bad tenant won't slip through the cracks every now and then.

    0Reply
  • Yoel GoldbergPro Member
    Investor · Member since 2024 · 12 posts · 1 vote
    10mo

    Great question and smart move starting with smaller multifamily before scaling up. A few key concepts I’d focus on as you’re getting started:

    -NOI (Net Operating Income

    -Cap Rate

    -Cash-on-Cash Return

    -Debt Service Coverage Ratio (DSCR)

    -Value-Add Strategy 

    -Exit Strategy

    If you can underwrite confidently, understand leverage, and know your market’s fundamentals (rents, expenses, and cap rates), you’ll be ahead of most new investors.

    If you’d like, you can DM me and I can help you go through a deal your looking into.

    0Reply
  • G. Brian DavisPro Member
    Investor · Hatboro, PA · Member since 2016 · 3k+ posts · 861 votes
    10mo

    Hi @Malachi Gutt, focus first on the fundamentals: NOI (Net Operating Income), Cap Rate, Cash-on-Cash Return, and DSCR these drive property value and lender decisions. Also learn rent rolls, expense ratios, and value-add strategies. I talk with multifamily operators often through my club, and mastering these basics makes every conversation and deal analysis much clearer.

    1Reply
  • Malachi Gutt
    OP
    Rental Property Investor · Indianapolis · Member since 2024 · 13 posts · 15 votes
    10mo

    Thanks everyone for all the feedback — I really learned a lot from this!

    Quick question though: are all these terms still relevant when analyzing small multifamily deals (under 5 units)?

    0Reply
  • Yoel GoldbergPro Member
    Investor · Member since 2024 · 12 posts · 1 vote
    10mo

    Yes, there are investment terms to help see how the deal is.

    0Reply
  • Izaiah Barba
    Wholesaler · Portsmouth NH · Member since 2019 · 208 posts · 95 votes
    10mo

    Hey Malachi, I recommend listening to the Multifamily Wealth Podcast.
    It really helped me build a solid foundation on what to look out for in the space. I’d start there and search for episodes that match your specific questions, then watch those to get clear answers and direction.

    2Reply
  • Greg Kasmer
    Rental Property Investor · Philadelphia, PA · Member since 2021 · 774 posts · 501 votes
    10mo

    @Malachi Gutt - 2-4 units is different than 5+ units when it comes to underwriting as well as financing. I would suggest you read "Multifamily Millionaire Vol 1 & II" to get a solid foundation of the benefits of each phase. It's a great book on Bigger Pockets. Good Luck!

    The Multifamily Millionaire, Volume I | Small Multifamily Real Estate – BiggerPockets Bookstore

    The Multifamily Millionaire, Volume II | Large Multifamily Real Estate – BiggerPockets Bookstore



    2Reply
  • Stephen QuesinberryBusiness Member
    Real Estate Agent · Cumming, GA · Member since 2016 · 226 posts · 157 votes
    10mo

    There are a lot of ways to answer this question, and most replies so far have focused on the financial analysis side. I’ll offer a different angle that often gets overlooked: the financing structure.

    One big distinction in multifamily is the role of agency debt. Fannie Mae and Freddie Mac make multifamily particularly attractive compared to other CRE asset classes because they offer some of the best terms in the market—longer amortization, fixed-rate options, supplementals, and generally more favorable underwriting.

    Another key difference as you scale into MF is how lenders underwrite the deal. For single-family or small commercial, the lender is underwriting you—your income, debt-to-income ratio, etc. But with multifamily, the lender primarily underwrites the cash flow of the property. The asset has to stand on its own.

    That said, you’re still required to sign as a guarantor, and that comes with real requirements. Generally, agency lenders want:

    • -Net worth equal to or greater than the loan amount,

    • -Liquidity of roughly 10% of the loan amount, spread across the guarantor team.

    This becomes a gating factor as you scale. You either need to meet those thresholds personally or partner with someone who does.

    It’s also crucial to understand the difference between recourse and non-recourse loans:

    • Recourse loans: You’re personally on the hook. If the deal goes bad and the property can’t cover the debt, the lender can come after your personal assets to make up the difference. These are common in small commercial, local bank loans, or bridge loans.

    • Non-recourse loans: The lender’s only remedy is the property itself. They can take the asset, but they cannot pursue your personal assets—unless you trigger a “bad boy carve-out” (fraud, willful misconduct, misrepresenting financials, etc.). Fannie and Freddie loans are typically non-recourse, which is one of the reasons many investors scale into multifamily.

    So while the financial analysis matters, the capital stack and loan structure often shape what’s possible—and who can realistically execute at scale.

    Cornerstone Real Estate Partners
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  • Min ZhangBusiness Member
    Real Estate Agent · Member since 2022 · 1k+ posts · 1k+ votes
    10mo

    Hi Malachi,  the key concepts to understand include the difference between residential multifamily (2–4 units) and commercial loans for 5+ units. You should speak with your lender for the most accurate details on down payment requirements, terms, and rates. Another major concept is inheriting tenants, because most multi-family purchases come with existing leases and occupants, so you’ll want to review the rent roll, tenant ledger, lease terms, and payment history to understand what you’re taking on. It’s also important to conduct thorough due diligence, including inspecting major systems and reviewing all expenses, to ensure the property performs as expected. Hope this helps!

    [email protected]614-412-2912
    Reafco.512 Reviews
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  • Chris Grenzig
    Property Manager · Orlando, FL · Member since 2016 · 479 posts · 277 votes
    10mo
    Quote from @Malachi Gutt:

    Hi all , I want to step into the multi family and apartment building world.
    (starting from 2-5 units and going up slowly)
    What are the most important concepts and terms to understand when getting started with multi-family property investments?

    Thank you very much

     @Malachi Gutt I would also learn what yield on cost is. This is your NOI/total cost of the deal. Total cost includes purchase price, closing costs, renovation costs, refinance costs, everything basically.

    Also, as far as learning these concepts for a 5 unit, they are definitely worth learning and knowing yourself, but an agent or broker selling a 5 unit may not be familiar or use those to talk about pricing or anything. 

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