BiggerPockets Real Estate Podcast - How to Buy a Small Multifamily Rental (2-4 Units) in 2025

Episode Date: September 24, 2025

Small multifamily rentals may be the secret to turning average investors into millionaires. These unassuming properties are in the perfect “sweet spot” for scaling a real estate portfolio, helping you reach financial independence faster with more passive income than regular, single-family rentals, but with even fewer expenses. Today, we’re giving you the five steps to buy your first small multifamily and why 2025 may be the best time to get in the game. Dave, your host, is financially free right now primarily because of small multifamily rentals. His first rental was a small multifamily, he house-hacked a small multifamily, and over a decade later, this remains his favorite real estate investment—for good reason. Small multifamily properties bring in more rent but leave you with only one roof, one furnace, and one foundation to worry about. You can use the best, lowest down payment debt to get one, and just a few of these properties could make you financially free. So, how do you buy your first multifamily property? We’ll break down the five beginner-friendly steps to get there, from picking a market to finding deals, getting a loan, analyzing for cash flow, and closing and managing. This is the small multifamily blueprint that works in 2025 (we’re currently using it to invest!).  In This Episode We Cover Why small multifamily rentals are in the perfect investing “sweet spot” for 2025  The five simple steps you can take this year to buy a small multifamily rental  Why smaller multifamily rentals often outperform larger ones How to get into your first small multifamily for just 3.5% down  The best real estate markets for small multifamily investing in 2025  And So Much More! Check out more resources from this show on ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠BiggerPockets.com⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://www.biggerpockets.com/blog/real-estate-1178 Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠[e-mail]⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Learn more about your ad choices. Visit megaphone.fm/adchoices

Duplexes, triplexes, and quadplexes are the best real estate investment for anyone looking to build wealth and achieve financial freedom in 2025. And today, I will share the unique advantages of small multifamily properties in the current market that we're in. I'll outline step by step exactly how to find and buy one, and I'll share a few mistakes you need to avoid if you're going to invest in this asset class. Hey, everyone, welcome back to the Bigger Pockets Real Estate podcast. I'm your host. Dave Meyer, head of real estate investing here at Bigger Pockets. And on this show, we help you achieve financial freedom through real estate investing. Today on the show, we're talking about one of my all-time favorite topics and favorite strategies, particularly for new investors' small multifamily properties. When I say small multifamily, I'm specifically talking about properties with two to four

units. These are, like I said, duplexes, triplexes, fourplexes. The reason I like them so much is that they provide more economies of scale than just your basic single family homes, but they are easier to acquire and they are less risky than larger multifamily buildings. And I think this sort of makes them a perfect sweet spot for almost every investor, whether your early career or you're more experienced and are just trying to scale a bigger portfolio. So in this, episode, what we're going to do is I'll start by explaining the unique advantages of two to four unit properties, especially in the current high home price, higher interest rate environment that we're currently in. Next, I will walk through a five-step blueprint of how to find, analyze, finance,

and then close on small multifamily properties right away. And then I will share some common mistakes that I see a lot of new investors make with these types of properties and we'll get them out in the open so you can hopefully avoid those mistakes. And by the end of today's episode, you will have a complete roadmap for buying your first small multifamily. Let's get to it. So let's just start a little bit with some context. So two to four unit properties have always made a lot of sense to me. That's how I got started. I still like buying them. There's still the thing that I prefer to buy if I could just pick and design a deal out of nowhere, I would buy two to four units all the time because I just think they serve this sweet spot. They allow you to

get residential debt. I find them a little less risky than single family homes, which we're going to talk about in a minute. More and more two to four unit properties are starting to hit the market. I've been getting calls from real estate agents, from wholesalers, people who really do want to start moving these things. And that honestly hasn't happened in a couple of years. which is why I wanted to do this episode because it's got me pretty excited about this asset class again. And I want to go into this a little bit and just take a minute to explain the differences between small multifamily and let's just say single family investments and why I prefer two to four units if I have the option. Number one is multiple income streams. This is just a risk mitigation tactic because if you buy a triplex and you have three different tenants paying you rent,

if you have a vacancy in one unit, you still have the other two income streams coming in. And of course, there can be situations where that doesn't happen, but it does offer some risk mitigation as opposed to a single family property where you just have that one tenant. And if they stop paying or, you know, you have a hard time finding a new tenant when they move out, that means you can lose 100% of your income. And that can hurt. So small multifamilies allow you to have those multiple income streams and to present. protect you a little bit against vacancies. The second thing I really like about this asset class

is economies of scale. Basically, think about it this way. For a house that's 3,000 square feet, you could have a single family home that has one tenant, one income stream, and it also has one roof. In a lot of cases, it also has one HVAC system. It has one hot water heater, one foundation, right? One driveway, one garage. Well, if you have a two unit or a four unit, a lot of times you get those economies of scale. You can have two units that are still 3,000 square feet, but they're probably bringing in higher rent because generally speaking, two 1,500 square foot properties are going to bring in more rent than one 3,000 square foot property. It might not be true everywhere, but that is true most places. And then you have

still one roof. And so the expenses for that roof, for that HVAC, for lawn care, get split between two units. And that can lead to efficiencies in both your repairs and maintenance and management costs. And you just don't get that if you're buying multiple single family homes. The third thing I love is just scale. We just talked about economies of scale, which is kind of like how efficiently a lot of your repairs are and your maintenance. But also, you just get to scale to more doors, which is not my favorite way of measuring your property. But it does allow you to pick up more units. It allows you to bring in more revenue, which is the thing I do really care about. And so small multifamily, if you were just going to go out and buy one property this year, probably means that you are going

to be able to generate more revenue from the one property you buy this year, as opposed to if you bought a single family home in a similar neighborhood. And that can just help you scale your portfolio faster. So fourth thing is the option to owner occupy. This is an awesome thing that you can do. We have tons of resources on bigger pockets. You can check out. But basically what I'm talking about is house hacking. If you want to and are willing to live in one of the units and buy a duplex, a triplex, a fourplex, there are tons of advantages. You get better debt. It's a great learning experience. The underwriting is a lot easier. And so that ability to live in one of the units and rent out the others is something I love about small multifamily. It gives you just a lot of

flexibility, especially early in your investing career, if you're sort of going with the house hacking approach, which is an amazing approach, you should definitely think about that. And obviously, owner occupied doesn't work if you're buying single family rentals. That just becomes your primary residence, right? So like, if you want to do an owner occupied rental strategy, you got to buy a two unit, a three unit, or a four unit. So those are some of the comparisons for small multifamilies compared to single families. But what about larger stuff? Because I can imagine people are thinking, yeah, I'm sold on the ideas of scaling and multifamily, but why stop at four units? Why not go up five, 10, 20 units if you could just do that?

The first, and I think the most important reason, is financing. When you get above a four-unit property, so anything five units or bigger, you get commercial debt. And that is just a whole another ballgame. It is much riskier debt. It is typically variable rate debt. It is, It usually has a balloon payment. And if interest rates and the interest rate environment shift in a way that you don't like, it could put you in a really bad spot. And the risk of interest rates changing is much, much, much smaller in residential debt because almost everyone who buys a two to four unit property is probably going to buy it with fixed rate

debt. That's the same kind of debt you get on your single family home or your single family residence. That interest rate is locked in for 30 years. So even if the interest rate environment changes, you're still paying the exact same amount. And that type of debt structure adds a level of stability and risk mitigation to your portfolio that I personally really value. I think it's super important because if I'm going to invest for the next 10, 20, 30 years,

when I buy a property, I hope to hold onto it that long. And if I don't have fixed rate debt, I'm not that confident I'm going to be able to hold on to it. But on two to four units with that fixed rate debt, I feel very confident. So those are the many reasons I absolutely love two to four unit properties and why I think almost every investor should have these in some level in their buy box. Hopefully you're sold. And after this break, we're going to go into a step-by-step buying process for your next small multifamily property.

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Welcome back to the Bigger Pockets podcast. I'm Dave Meyer, giving you my ultimate guide to buying a small multifamily property in 2025. Before the break, we went over why I love small multifamilies. Now it's time to turn our attention to how do you actually pull this off? And I've got a five-step buying process for you. Step one is going to be doing your market research and setting your goals. Because as I say on the show for, no matter what strategy you're looking for, what your buy box looks like, before you start looking at properties,

you need to know what you're actually trying to accomplish. If you are trying to get rich quick, you might want to be in a different industry. But what I really mean is, are you looking for something time intensive? Are you looking for something that you could add value to? Are you looking for something that's going to be pretty easy for you to manage and isn't going to take a lot of time? I know it's not as fun as going on Zillow and clicking around and looking at everything, but I promise you it will make your entire investing process easier.

If you just spend a couple of minutes trying to figure out what is realistic for you, and what's going to work well with your personal circumstances, your goals, and your lifestyle. Once you've done that, it's time to figure out if your local market is going to offer you the type of deals that are aligned with your goals and sort of the vision that you have for yourself. There are certain markets, a lot in the Midwest and the Northeast, that just have tons of small multifamilies. Like, there are just duplexes, there are fourplexes all over the place. it's probably going to be pretty easy to find them, and they're probably relatively affordable. Meanwhile, there are some markets where they just don't build this kind of stuff.

And so you have to ask yourself in those kind of situation, do I want to do this strategy? Because sure, I love small multifamilies, but maybe it's not right for you if it's just not in your own backyard. Or do you want to go to a market and maybe invest out of state to find these kinds of properties? Maybe you do want to invest somewhere in the Midwest or in the Northeast because you're sold on the concept of of them. This is also true about price, right? Because certain places, maybe they do have duplexes, but they're insanely expensive and the numbers don't make sense. And so you need to decide if small multifamily is working in your market for you. And if not, where you're going to actually go buy them. If you are sold on the idea of small multifamily and they don't work in your own

backyard and you're thinking about doing this long distance, some of the places I would just check out are Michigan, Indiana, Ohio, Pennsylvania, New York, Iowa, Kansas City. These places are relatively affordable and have a lot of this kind of inventory. They make a lot of sense. I would check those out. If you want to look for new construction, like I just mentioned, there are places where they're doing build to rent where you can also find these things. On the Cashlow Road Show, we just went and saw some build to rent places in Indianapolis that were pretty attractive. I see these kinds of things in Texas. I see them in Oklahoma. I see them in Tennessee right now. So those are some places you can check out

if it's not going to work in your own backyard. All right, once you figure out that, your goals and whether it's going to work in your market, what market you want to invest in, you move on to step two, which is financing. And as I said before, this is where small multifamily really shines in my perspective. Because up to four units, again, you qualify for residential financing. So if you are going to just buy this as a rental property, you're not planning to house hack and live in it, you can put 20 to 25% down for these types of properties, which is an affordable down payment from an investor perspective. Some commercial loans can be higher. You typically get a fairly good interest rate, and you are getting that fixed rate residential debt that I just love so much.

And so that's what I recommend people looking at, is just try to find a conventional mortgage. You don't need to do anything fancy with the two to four unit property. Just go out and apply for a regular mortgage. The thing I love about this is that there's nothing complicated about it. Go get conventional loans. Now, if you are going to do house hacking, that actually opens up even more beneficial things because you can get, for example, an FHA loan, which allows you to put as little as 3.5% down if you live in one of these units. You can also get conventional loans where you put 5% down. So obviously for newer investors or people who have capital constraints, this might be a way for you to buy four units putting 5% down. That is truly an amazing way to get into real estate. Again, this is one of the

ways I started. It is a way that so many people start is by doing this house hacking strategy. Now, of course, not everyone can afford 20% down or if you're not willing to own or occupy. Then that's when you could get a little bit more creative. And there's nothing wrong with that. you can look for seller financing because at least in my experience, we're starting to see more and more sellers willing to carry notes and do seller financing. I want to caveat and say that seller financing is not easy. I know there are a lot of people on social media who go out and say, like, oh, just do seller financing. Most people don't want to do seller financing. It is not like the easiest thing to find, but if you can find it, they're great. Like it can be a really good

thing to do. So that is definitely something to consider. And then the last thing is just partnerships. I know a lot of new investors overlook this and say, I don't want a partner. I want to own it alone. I'm going to tell you a little secret about this industry. Pretty much everyone partners all the time, even experienced investors. Partnering is just a reality of real estate investing. Maybe later in your career, you partner less so that you own things outright, you do risk mitigation. But if you're trying to get into it and you know someone who has capital who wants to be in this, who understands the business, who you have a good relationship with, consider partner. I partner on a lot of deals. I know tons of experience investors who partner on every single

deal that they do. This is just how it works. Don't overlook this strategy if you're trying to get into the industry. So those are the financing options. Just as a reminder, if you have the capital saved up right now and you're not going to owner occupy, my number one recommendation, just do a conventional mortgage. It's boring, but it's going to work. If you're going to owner occupy, see if the low down payment options work for you. And if you don't yet have enough saved up, consider seller financing or partnership options because those are ways that you might be able to get into the industry right now as you are saving up money and building up capital to maybe purchase other properties in the future. So that's step two. Just as a reminder, step one was figure out your goals and your market and making sure those

are aligned. Step two was figuring out your financing, which we just talked about. Step three, this is where it gets a little fun. You start looking for properties and doing the analysis. Maybe you think I'm crazy. I actually think this is fun, but it's also where a lot of investors start to go wrong. People fall in love with properties. They look at it emotionally before they actually run the numbers, but you have to have a systematic approach to analyzing deals if you are going to be a successful real estate investor. Now, how you actually go and look for properties

is really up to you, but in this new market that we're in, where there's more inventory coming on the market. My recommendation, first step, just go to a real estate agent. Again, all my advice is really boring. Use a conventional mortgage. Use a real estate agent. But this stuff works. We're no longer in this era of three years ago when nothing was on the market and you had to do off market deals. Now, there are pros and cons of this because prices are falling a little bit. There is more risk in the market, but it also means that there are more deals on the market. And to mitigate those risks, of prices going down, take advantage of what the market is giving you. And right now, on-market deals are coming back. And I think that's going to just accelerate into the future. So there are tons of

deal-finding strategies. If you want to do off-market deals, there's tons of podcasts we have with Henry Washington on where he talks about how he finds off-market deals. That's awesome. But for most people, honestly, I think look at on-market deals right now. You're going to be able to find two to four units. And as we go into the end of 2025 into 2026, I think, there's just going to be more and more of those deals. So once you start getting those leads in, and you're seeing these properties, whether it's on Zillow or your agents sending them to you, and you're seeing two to four units,

you need a process for going through and figuring out which of all these deals you're actually going to buy. Now, what I recommend to people, the easiest thing to do is just use the Bigger Pockets calculators. You absolutely could build your own spreadsheet if you want to, but we have calculators on bigger pockets you can use, the rental property calculator. They are meant to work with these two to four unit properties,

and you can easily, in a matter of minutes, maybe the first time you do it, it might take you at 20 minutes or 30 minutes. But once you get good at this, it's going to take you probably five to 10 minutes to analyze a deal. And that's super important because my advice about finding deals, especially in the kind of buyer's market we're in today,

is to analyze a lot of them. You want to analyze five deals, 10 deals, 20 deals easily, maybe 50 deals, maybe 100 deals. I will analyze as many deals as I need to until I find the ones that work. The only way that you understand what's a good deal and what's a bad deal in this market is by analyzing a ton of deals. If someone sends you a duplex and it's the first deal you've ever analyzed and they say, is this a good deal? You'll be like, I don't know. It's just a bunch of numbers on a page. But if you had analyzed 30 deals up to that point, you could say, actually, this deal is not great.

The cash on cash return. The overall expenses are way higher than the other deals I've been looking at. I'm going to pass. Or after 40 deals, you're going to say, whoa, I have double-checked my numbers and I have run this through the calculator. And this deal is rock solid compared to everything else that I have looked at. This is the one that I am going to buy. And that's why I was saying that it's so important that you have sort of a systematic way of analyzing deals because you need to be able to compare apples to apples.

You need to look at one deal next to the other one to be able to say this one is better than that one. So many people send me two different listings on Zelen. They're like, which one's a better deal? Like, what are the numbers? What's the return? Like, there is math that you need to be doing on every single deal. And the math needs to line up. How does cash on cash on property A compare to property B?

How does the appreciation compare on property A to property B? What are the risks on property A compared to property B? That's why either using the Bigger Pockets calculator or building a spreadsheet that you can scale on your own is so important. And I know there are a lot of metrics out there. I wrote a whole book on how many metrics there are about real estate investing. But if I were you, I would basically want to focus on two or three things. Number one is your return on equity or your cash on cash return. Personally, I like return on equity. Other people use cash and cash return. They're pretty similar. But what I want you to do is in this

market environment that we're in in 2025, you've got to have positive cash flow. I know there are people who say to investor appreciation, I wouldn't do it. I just wouldn't in 2025, 2026. It's too risky. I know that means some deals are coming off the table. That's fine. We're in a weird market right now. I would rather all of you protect yourself against downside risk than buy a deal just based on speculation and appreciation. So that's the number one thing. It's got to have at least break even cash flow. Now after that, I am willing to take low cash on cash return if there's great upside potential. So I'll take a two, three, four percent cash on cash return. If this is an a plus neighborhood, it's in the passive progress, there's zoning up.

upside. Maybe I think rents are really going to start going up because two to four percent cash and cash return is not good enough for me long term, but I'll buy a deal that has two to four percent cash on cash return if I think I can get that return to 10 or 12 percent in the next couple of years. Now on the flip side of that, if this is a property in a C class neighborhood, it's probably not going to appreciate, you know, rents are like, you know, in the middle. Then when I buy it, I need that cash on cash return to be at least 8 percent. Ideally, it's closer to 10 or maybe even 12% because I'm not going to get my return in other places. And this is sort of the spectrum that I think you need to play with.

I know people debate about what's better at cash flow appreciation. I think they're both good personally. I don't buy deals that don't cash flow. So I want to make that very clear. But anything that cash flows, then I think you start to play with these numbers. Is the appreciation worth taking lower cash flow? Or is there so much cash flow that I'm willing to give up a price flow? appreciation. That's really up to you. But when you're analyzing your deals, those are the things

that I would really look at. What's your total appreciation overall return? What is your cash on cash return? And then compare it to the level of risk. Because you might say, oh, my God, this deal is amazing. There's 12% cash on cash return, but it's a property that has foundation problems in a bad neighborhood where the population is declining. That's not worth it. I'm sorry, 12% cash on cash return is good, but you're taking on property risk, you're taking on market risk. Nah, not interested in that. So those are things to look at. Cash on cash return or return on equity.

You want to look at your appreciation and then compare it to the relative level of risk. There's no way to quantify risk. You have to just figure that out for yourself. But as you analyze lots and lots of deals, you're going to be able to figure that out for yourself. So that was step three. Step four is making your offer and due diligence. And so first thing you've got to do is make an offer based on what you are able to

pay, and you should figure that out in your analysis process. Remember that right now, things are often selling for less than their list price. And so during your analysis, if you don't want to pay 300 grand and you say, actually, this deal makes sense for me at 280, offer 280. And if the seller doesn't accept it, that's okay. Move on to the next deal. But let's just assume that you get one of these accepted. Then you move on to the due diligence period, which is when you really dig into not just the high level numbers, but everything and every detail about this property. Go through and get all the information you can get from the seller. So look at rent rolls for at least the last 12 months. You want to look at expense statements.

Please try and get as much property updates, CAPEX, capital expenditure, reporting as you can. When's the roof from? When the systems replaced? Like those kinds of things, get all the information. Your agent should be able to help you figure out what you need. Definitely get an inspection. Again, one of the benefits of being in the kind of market that we're in. right now is that you have time. Most sellers aren't making you clothes in 14 days. So go get an actual inspection and make sure all of this is good. And be willing to walk away. If there are red flags in the property, walk away. There are going to be more deals. This is the benefit of being in a buyer's market. More deals are coming. Do not buy a deal because you feel pressured. If you are uncomfortable

with it, just don't buy it. Walk away. Move on to the next one. Once you've done your due diligence and inspection, then it's just time to close. This is pretty easy. All you got to do is fall the instruction of your agent and your escrow officer. Just make sure you dot all your eyes. You make sure all the legal documents are correct. And then you close on your property. At that point, you need to become a good property manager. That's when you start introducing yourself to your tenants, seeing if there's vacancies and trying to build those vacancies. But we have tons of other resources on Bigger Pockets on how you can do that. And so I'm not going to go into detail on that. My main point here is that a lot of people look at closing as sort of this finish line that

they're trying to get to, but that's actually the starting point, right? You close out a property, that's when the real work begins. It's no longer theoretical. That's when you have to go in, fix anything that's broken. Make sure that your tenants are happy living there and that they are intending to stay because we all know vacancies stink. And ideally you're inheriting great tenants, which often happens. If there are vacancies, you need to be ready on the day of close.

Be ready to start marketing that property so you can make your vacancy as short as possible. Just think about this stuff. I know the closing is exciting. It is exciting. It's fun. Everyone loves a closing. But that's the day your business starts. So make sure that you were ready.

You got your bank accounts open. You got that credit card ready to go. You have your insurance. You are ready to operate your business successfully on that day of closing. That's what you need to be focusing on. So those are the five steps. As you can tell from this conversation, you can do some of them quickly. Step one, market research and goal setting. That should take you a day to really figure that out. Step two, financing. That might take you a couple of days. Call around. Call a couple of banks,

credit unions, figure out where you're going to get that money from. Step three, the property search and analysis, this could take anywhere from a week to several months. But again, my advice to you is to be patient and to analyze as many deals as you need to before you feel comfortable buying a property. Then step four and five, honestly pretty easy. Do diligence and inspection. Your agent, escrow officer are going to help you with that. And then closing is honestly easy. You show up and sign a couple pieces of paper, assuming all the paperwork is right. But then be ready to start that business and become a great property manager on day one that you close on your small multifamily. So those are the steps you need to take. But before we leave today, I have one more thing I want to

talk about which are common mistakes and how to avoid them. We'll get to that right after this. The rise of the tech savvy investors here. You don't need a huge team or tons of overhead to manage rental properties. Just the right tools. So I want to tell you about how I use rent ready to get ahead. For landlords who treat their time like capital and recognize the cost of sweat equity, this tool gives you everything you need to scale. Rent collection, tenant screening, maintenance accounting, so that you're organized come tax season and you can run numbers in preparation for future deals and more. all in one platform via a mobile app or desktop.

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a decade. And if you want to learn more, visit biggerpockets.com slash retirement. There are two kinds of real estate investors, those who have reviewed their insurance, and those who think that they have. Most don't realize their coverage wasn't built for how they actually invest. Vacancy periods, rehabs, short-term rentals, or LLC-held properties. These gaps surface only when filing claims. That's why investors work with NREG. They specialize exclusively in real estate investors, understanding portfolios, risk at scale, and cash flow protection. One claim can erase years of returns. If you own a rental property, Don't assume you're covered. Have NREG review your insurance with someone who gets investing at NREG.com slash BPPod. That's NREIG.com

slash BP pod. Managing properties can feel like a full-on circus. You're juggling vendors, tracking payments, chasing approvals across multiple properties, and maybe a few HOAs, all while trying to keep tenants happy and owners confident. One delay can throw everything off and suddenly your day is all clean up. progress. That's why hundreds of property managers rely on bill to streamline their finances. Bill for property management lets you add all your properties, assign permissions, pay bills, and receive payments quickly and efficiently, without the usual bottlenecks. It syncs with platforms like QuickBooks, Zero, NetSuite, and Sage intact, so your accounting stays aligned. You can automate bulk payments across properties and HOAs. Choose flexible payment methods like same-day ACH, international wires,

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and get a $100 Amazon gift card. That's bill.com slash bigger pockets. Tax season reminder for all the real estate investors listening. If you own rental properties, short-term rentals, commercial buildings, Basically, anything that's not your primary residence, you need to know about cost segregation.

It's an IRS compliance strategy that lets you accelerate depreciation on your properties, which means you're paying less in taxes this year and keeping more cash in your pocket for your next deal. Cost segregation guys is the go-to firm, having done over 12,000 of these studies with 500 million in total depreciation identified. Head to costsegregationguise.com slash BP to get a free proposal. and see your potential tax savings. Welcome back to the Bigger Pockets podcast. I'm Dave Meyer here talking about two to four units, my favorite asset class in all of real estate,

and how you can go about acquiring them. We've talked about why they're so great, the steps that you need to take to go and buy them, but I also want to just take a couple of minutes here quickly to talk about common mistakes that I see in this asset class and how you can avoid them. The number one mistake is underestimating expenses. I rail about this on the show all.

the time, the difference between real underwriting, real deal analysis, and social media analysis, you often hear people say that they have cash flow because their mortgage payment is less than their rent. That is so ridiculous and so wrong. When you are a landlord or a property manager, you have so many other expenses. Repairs and maintenance, most people remember those. What about capital expenditures? Things like a roof. I know your roof might not break next year, but you need to be setting aside money every month for that roof that will need to get replaced, and that is an expense. What about vacancy, turnover costs, property management costs, insurance, taxes, all of these things. Don't forget any of them. And also, do not look at them with rose cover

glasses. I think that's the other thing. People are like, oh, well, maybe my water heater won't break. Yes, it will. Maybe, you know, I won't need to make that many repairs in my first year. Yes, you will. I mean, hopefully you don't, but don't assume that you're going to get away easy. Assume everything's going to go wrong. Hopefully it doesn't, and then you'll be fine. But I think in any deal I analyze, I always assume the worst case scenario so that if things go poorly, I'm still okay. And if things go better or normal, then that's all upside. That's a cherry on top for me. So that's the number one mistake. Do not underestimate your expenses. Number two, overpaying for potential. A lot of people do this. They say, oh, you know,

rents are 1,500, but maybe I'll get 1,800. Maybe you will. But again, this goes with sort of my philosophy of not looking at things with rose-colored glasses. You need to assume that things are going to be pretty average for you. Don't assume you're going to be the exception to the rule. And so if rents are 1,500, assume rents are going to be 1,500. Don't think that you're going to defy market dynamics. It's ridiculous. The other thing is appreciation potential. A lot of people look back and frankly, there are some bad agents out there who say, oh, you should buy this property. The average appreciation over the last couple of years has been 10%. And that's probably true. But that is extremely unusual. And we are probably going back to an environment where

appreciation is closer to the historical average, which is 2 to 4% in a given year. And in the next couple years, it might be zero. You know, I've gone on the show and told you, I think property prices could be flat. They could be negative for the next year or two. And so don't overpay for potential. I know we just got out of this era where everything was moving quickly and you had to move fast and jump on things before they were gone. We're not in that era.

Be patient. Don't overpay for things. Be really disciplined about what you're going to buy. Number three is ignoring cash flow. I've said it on the show a few times, but I want to underscore in this kind of market environment, do not buy something that does not cash flow, especially if you're new. If you're experienced and you have a huge portfolio that cash flows overall and you want to land bank something or you really want to speculate or you're going to redevelop something in a couple of years,

okay. But for most people, I would really not advise buying something that doesn't cash flow within the first year. It doesn't need to cash flow on day one. Like a lot of properties you need to fill vacancies, you need to do a renovation and bring. the property up to market rents, that's fine. You know, in the first year, as long as it cash flows. But you need to have a plan to get it to cash flow. I would not buy something that you're going to buy today and say, maybe we'll cash flow two years from now or three years from now if things go well. I wouldn't do that. You need to buy things that are going to cash flow where you have a plan, a credible plan, to make them cash flow in the next year. That's the only thing you should

be looking at in this kind of market environment. Then the last just group of mistakes that people make, and I alluded to this earlier, is just not being prepared to operate your business. And a lot of people, again, look at closing and say, oh, my God, I have three units now. Well, now you've got to be a property manager. And so make sure, especially ahead of when you buy, that you have your systems in place.

If you're going to use software, go look for software ahead of time. Get that set up. If you're going to hire a property manager, go hire that person before closing. Ideally, what I do is I have my property manager look at properties before I actually close on them to make sure that they're going to be good. Make sure that you understand local laws because different municipalities, different states

have different landlord tenant laws and you need to make sure that you are abiding by all of them. Make sure you understand how to screen tenants, who you're going to call when something breaks. Thinking about these things ahead of time are really going to help you operate efficiently, but also just reduce some of the stress of being a landlord. Like, I can speak for this experience. When I first started and someone would call and say there's a plumbing problem and I didn't know what plumber to call, that was really stressful. I really didn't like that.

And so I eventually built up three different plumbers that I knew. And those are the people that I call. If the first one's not available, I call the second one. Second one's not available. I call the third one. These kinds of things take time. You don't have to have them all set up right away. But start moving towards this as soon as you put a property under,

contract because these are the things that are going to make your life a whole lot easier and are going to give you the best chance to succeed as a landlord. All right. So that is what we got for you today. As I discussed, I think more deals are coming in 2025 and beyond for two to four unit properties. And I'm excited about that because I love this asset class for all the reasons I said above. I think it offers advantages over single family homes. I think the debt structure makes it better than big, large, commercial multifamily. And it's really not that hard to pull off. The difference between a two to four unit, like I said, these five steps, it's the same

thing you would do for a single family home, but you're going to be able to scale faster than buying that single family home. So just make sure that you're disciplined, make sure that you follow the principles that we talked about in the show, and make sure to avoid some of the mistakes that a lot of people make, and you'll be fine. This isn't some super hard, complicated strategy. As I said, a lot of what I've recommended to you here is boring. Go buy a cash flowing two to four unit property, use conventional debt on it.

Like, this is as boring as it gets, but it's because it works. This is a proven strategy that has worked for real estate investors for decades, and I strongly believe it's going to work in 2025, 2025, 26, and beyond. It's something that I'm personally pursuing, and I think it's something that most investors should seriously consider adding to their portfolio as well. If you have any questions about this, as always, feel free to reach out to me on biggerpockets.com or on Instagram where I'm at the Data Deli. Thank you all so much for listening to this episode of the Bigger Pockets podcast.

We'll see you next time. Do you ever notice how every passive investment somehow turns into a very active lifestyle, active spreadsheets, active phone calls, active stress? Here's a better question. What if you could buy brand new construction homes, 10% below market value, in the best markets across the country, without making really, real estate, your second job. That's exactly what rent to retirement does. They're a full-service, turnkey investment company, handling everything for you. In some cases, investors get 50 to 75%

of our down payment back at closing, plus interest rates as low as 3.75%. They've partnered with BiggerPockets for over a decade, helping thousands invest smarter. If you want to do the same, visit BiggerPockets.com slash retirement to learn more.