For many aspiring real estate investors, the dream of owning large multifamily properties—think 100+ unit apartment complexes—feels out of reach. These properties often require millions of dollars in capital, strong banking relationships, and a well-connected network of partners and investors. Unfortunately, most newcomers lack these resources.

However, that doesn’t mean you should give up on multifamily investing altogether. Instead, starting with small multifamily properties (2-4 units or 5-20 units) is a proven strategy to build experience, credibility, and capital before scaling into larger deals. Let’s explore why this approach makes sense and how it sets the foundation for future success.

The Financial Hurdles of Large Multifamily Investing

1. Large Down Payments – A $5 million apartment complex often requires at least 25-30% down, meaning an investor needs $1.25 million to $1.5 million in upfront capital. Most new investors simply don’t have that kind of money.
2. Strict Lending Requirements – Banks scrutinize investors’ experience, creditworthiness, net worth, and liquidity. If you lack a strong financial profile or track record, securing a commercial loan for large multifamily can be difficult.
3. Operational Complexity – Managing 50+ units involves dealing with property managers, maintenance teams, tenant turnover, and large-scale expenses. Without prior experience, this can be overwhelming.

Why Small Multifamily Is the Smart First Step

1. Lower Capital Barriers

Instead of needing millions, small multifamily properties allow investors to get started with much less. A fourplex at $500,000 with 20% down requires just $100,000, a much more achievable number. Additionally, owner-occupied financing options like FHA and VA loans allow as little as 3.5% down for a 2-4 unit property.

2. Easier to Finance

Small multifamily (2-4 units) qualifies for residential loans, which have simpler approval processes and lower interest rates compared to commercial loans. Even for 5-20 unit properties, local banks and credit unions may be more willing to finance a smaller deal if you have strong personal finances.

3. Hands-On Learning Experience

Managing a triplex or fourplex allows investors to learn property management, tenant relations, and maintenance on a smaller scale. This hands-on experience is invaluable when transitioning to larger multifamily assets.

4. Build Equity & Cash Flow

Smaller multifamily properties generate monthly rental income, and as property values appreciate, investors can leverage the equity for future acquisitions. This strategy, often called the BRRRR method (Buy, Rehab, Rent, Refinance, Repeat), enables steady portfolio growth.

5. Establish Credibility for Bigger Deals

Lenders and partners prefer working with experienced investors. Owning and successfully operating small multifamily properties proves you have the skills and discipline to manage larger properties, making it easier to attract financing and investment partners.

Scaling Up: Transitioning to Large Multifamily

Once you’ve built a small multifamily portfolio and established credibility, scaling to larger deals becomes much easier. Here’s how:

• Leverage Equity: Refinance smaller properties to pull out capital for larger deals.
• Partner with Investors: Your track record attracts joint venture partners and private investors.
• Seller Financing & Syndications: Experienced investors have more access to creative financing strategies that require less personal capital.
• Stronger Lending Position: Banks are more likely to approve large commercial loans for investors with a history of managing multifamily properties.

Ultimately

Jumping straight into large multifamily investing is difficult without significant capital and experience. Starting with small multifamily properties allows new investors to learn the business, build financial strength, and establish credibility before scaling into larger deals. By taking a strategic, step-by-step approach, you’ll be better positioned to achieve long-term success in multifamily real estate.

Are you considering your first multifamily investment? Let’s talk strategy!