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When it comes to choosing between single-family and multi-family real estate investing, many new and seasoned investors ask the same question: Which one is better? The answer depends on your investment goals, risk tolerance, and financing strategy.
In this post, we break down the pros and cons of each asset type – including the often-overlooked differences between 2-4 unit multifamily and 5+ unit commercial properties.
What’s the Difference Between 2-4 Units and 5+ Units?
One of the most important distinctions in real estate financing is between small multifamily (2-4 units) and larger commercial multifamily (5+ units). Even though both fall under the “multifamily” umbrella, financing terms are very different.
- 2-4 Units: These are often treated like single-family homes for financing. You can often get up to 80% loan-to-value (LTV) with more favorable terms.
- 5+ Units: These fall into commercial lending territory. Expect lower LTVs (65-70%), higher interest rates, and stricter requirements around rental income, reserves, and documentation.
Pros & Cons of Single-Family Properties
Pros:
- Longer tenant retention – renters often “nest” in a single-family home
- Simpler property management
- Fewer shared systems (just one HVAC, one roof, one water heater)
- Easier to sell individually or refinance
Cons:
- Lower cash flow per property
- Vacancy risk – one tenant moves out, 100% of your income is gone
Pros & Cons of Multifamily Properties
Pros (2-4 units and 5+):
- More units = more cash flow
- Economies of scale in property management and rehab costs
- Potential to increase NOI with value-add renovations
- Better long-term wealth building if held strategically
Cons:
- Shorter average tenant stays
- More maintenance (multiple HVACs, plumbing systems, etc.)
- Complex financing for 5+ units
- Higher purchase price and upfront cash requirements
Financing Considerations: DSR vs. Commercial Lending
When financing multi-family properties, you’ll typically use one of these options:
- DSR Loans (Debt-Service Coverage Ratio): These don’t require personal income validation and are ideal for 1-4 unit properties and some smaller 5+ unit deals – as long as the rents cover the debt service.
- Commercial Loans: Offered through community banks or portfolio lenders. These do consider your personal income, debt, and experience – especially for 5+ unit properties.
💡 Pro Tip: Smaller multifamily buildings in rural or low-cost areas may not qualify for DSR or commercial lending due to minimum loan amounts or unit values. You may need to pivot to short-term financing like a bridge loan and then refinance later.
What About Value-Add or Fix-and-Flip on Multi-Family?
Yes, it’s possible – but it’s not the same as flipping a single-family home.
With 2–4 units, most fix-and-flip lenders treat them like SFRs. But once you hit 5+ units, you’ll face lower LTVs, stricter underwriting, and more moving parts (like multiple tenants you may need to displace or evict).
If the property has existing tenants, you’ll need to:
- Understand lease terms and notice requirements
- Budget for vacancy during renovations
- Possibly navigate eviction laws if tenants won’t leave
So… Which Strategy Should You Choose?
There’s no universal right answer — it depends on your goals:
| Goal | Best Option |
| Maximize cash flow | 2–4 unit multifamily |
| Focus on appreciation | Single-family in A/B neighborhoods |
| Scale quickly with leverage | 5+ units (with experience) |
| Keep it simple | Single-family |
| Build long-term wealth | Mix of both |
Some investors want fewer, high-quality properties that appreciate well. Others want to maximize cash flow and door count. There are pros and cons to each – and it’s okay to evolve over time.
Final Thoughts
Whether you’re leaning toward single-family rentals or venturing into multifamily investing, make sure you understand the financing landscape and how it aligns with your strategy.
LFG Lending has experience across both asset classes, and we help you figure out the right lending strategy for your goals – whether that’s a simple BRRRR, a multi-unit value-add, or a creative financing play.
Need help evaluating your next deal – single-family or multi-family?
Let’s run the numbers and make sure it fits your investment goals. Contact the team at LFG Lending to get started.