Duplexes to fourplexes (2–4 units)

A small multifamily property is a duplex, triplex or fourplex: one building (or lot) with two to four homes. Lenders treat it as a home, not a commercial building, so if you live in one unit you can use owner-occupant loans such as FHA (often 3.5% down) or a VA loan (no down payment with full entitlement and the lender’s approval). Living in one unit and renting out the others to cut your housing cost is called “house hacking.”

The upside is real: tenants’ rent can cover a big share of the mortgage, and you build landlord skills while living on site. The downside is that you’re now a landlord to your neighbors, handling repairs, late rent and evictions. Lenders and underwriters often count only about 75% of expected rent to allow for vacancies. During the pandemic eviction bans, many small landlords had tenants stop paying and ended up selling.

Rules depend on the state and county, so check local rules before you buy. In California, buildings with three or more units must have balconies, decks and stairs inspected (Health and Safety Code 17973, SB 721). Local rent control there may also limit increases.

Who it suits

First-time buyers who will live in one unit and want rent to offset their mortgage.
Veterans and service members who can use a VA loan (up to 4 units, owner-occupied).
Handy, organized people willing to be on-site landlords.
Buyers with steady jobs and savings, since lenders and good sense both call for reserves.

Who it doesn’t

People who want privacy from their tenants or dislike conflict.
Buyers who need every dollar of rent to make the payment. A vacancy or non-paying tenant can break the budget.
Anyone not willing to learn their state’s landlord-tenant and eviction rules.
Buyers who plan to move out quickly. Owner-occupant loans require you to live there.

Real stories

Four of nine tenants stopped paying (2021)

When the economy shut down in 2020, four of their nine tenants stopped paying rent entirely. Eviction bans kept the couple from going to court. They used personal savings for repairs, property taxes and mortgages. In the end they sold half their properties because they couldn’t make the numbers work.

Lesson: Keep large cash reserves. With only a few units, a couple of non-paying tenants can wipe out your income. NPR (CapRadio, via KUNC): Economic pressures are rising on mom-and-pop rental owners (Jul 7, 2021)

Counting on rent for retirement, then selling (2021)

He bought three rental properties in 2017, expecting about $1,000 a month after expenses to support his family and, later, his retirement. During the pandemic eviction moratoriums, unpaid rent built up. When the federal moratorium was extended, he decided to sell.

Lesson: Rental income can stop suddenly because of tenants or new laws. Don’t depend on it for your own bills. Associated Press (via Times-Republican): Landlords look for an exit amid federal eviction moratorium (Aug 2021)

Costs

Mortgage, taxes and insurance on a building that usually costs more than a single-family home in the same area.
FHA mortgage insurance: an upfront premium of 1.75% of the loan plus an ongoing premium (HUD).
Closing costs of about 2% to 6% of the price (WFTV/Lower feature, 2026).
Vacancy and non-payment. Plan for at least a 25% cushion on projected rent, as underwriters do (National Mortgage News).
Repairs and upkeep for several kitchens, baths and systems. In California, 3+ unit buildings need balcony/stair inspections and repairs.
Legal costs and time for evictions.

How people pay

FHA: as little as 3.5% down for 2-4 units if you live in one unit. Purchases of 3 and 4 units must also pass a ‘self-sufficiency’ rent test (WFTV/Lower feature).
VA: eligible veterans can buy a home of up to 4 units with no down payment if they have full entitlement, the lender approves them, and the price isn’t above appraised value. They must live there (VA.gov).
Conventional: in November 2023, Fannie Mae lowered the minimum down payment on 2-4 unit homes you’ll live in to 5% (it had been 15% for two units and 25% for three or four). Your lender’s automated approval and other limits still apply.*
Lenders may count part of the expected rent to help you qualify. Underwriters generally reduce it to allow for vacancies.

Check before you buy

Get the current leases, rent roll and security deposit records, and confirm them with the tenants (estoppel letters).
Run the numbers with rent cut by 25% and with one unit vacant for several months.
Inspect every unit, plus roof, plumbing, electrical, and separate meters.
Check local rent control, eviction rules and rental registration requirements for the city and county.
In California, for 3+ units, ask for the SB 721 elevated-element inspection report.
Confirm the zoning allows the number of units (legal vs. unpermitted units).
Consider a landlord education class before buying.