Concept

Multifamily

What it is

Multifamily for a solo house flipper means small multi: duplex, triplex, fourplex. Each unit has its own kitchen, bath, and entrance. Same lot, same roof, same foundation, multiple rent checks. Once you cross five-plus units, it’s commercial financing and a different game. Below five, you’re still in residential lending territory with better rent-to-price ratios than most single family.

“Single family houses get valued by comparable sales. Multifamily gets valued by the income it produces. The math is NOI divided by your target cap rate.”

Why it matters

Multifamily solves the math problem of single-family rentals: the gap between rent and total cost including capex. A duplex at the same price point as a single family often rents for one and a half times as much because you’ve got two tenants splitting the building costs. It’s why house hacking works. Live in one unit, rent the other, let the tenants cover your mortgage.

And the valuation logic is different. “Multifamily uses the income approach.” You run NOI minus property management, vacancy, maintenance, capex, taxes, insurance (Ross’s napkin is roughly 60% of gross rent to cover all that), then divide the remaining NOI by your target cap rate. On a $4,000/month duplex, 60% of $4,000 is $2,400/month NOI. $28,800 annual NOI divided by a 7% cap rate is roughly $412K of value. “NOI divided by your target cap rate” is the whole formula.

The 1% rule is the napkin version of the same math. Gross monthly rent at 1% of purchase price (or better) usually survives a reasonable cap rate.

How it shows up

Start with a duplex as your first deal if the market supports it. fha loan allows up to four units on a primary residence mortgage at 3.5% down if you live in one of them. That’s house hacking maxed out.

Run the numbers at property class B. Don’t let C-class cash flow trap you into neighborhoods that eat your management bandwidth. Underwrite like a rental from day one: project noi, cash on cash, vacancy reserve (Ross budgets 7-8% in his own portfolio), capex reserve (another 8%). The exit is either dscr loan refinance or hold forever.

On the bigger end, when you buy multiple doors at once, the math gets interesting. Ross bought 9 single family homes for $315K under asking. The same logic applies: each property gets underwritten with PM cost, vacancy, capex, taxes, insurance baked in. “7% vacancy is what I have to figure on. I have to figure that those things are going to be vacant and I’m not going to be collecting any money. I have to figure on 8% capex.”

duplex, house hacking, fha loan, dscr loan, cash flow, noi, cap rate, property class