Although it’s only a one-unit difference between a residential 4-plex and a commercial 5-unit, it’s a completely different game. One that can reward you greatly when you can successfully identify and analyze opportunities for raising the income. And at the same time, one that can punish you horrendously when you make a mistake related to the Net Operating Income. Because whether you’re driving the NOI up or down, you’re changing the value. You really have to get educated about it before jumping in whereas stepping into small multis, you can pretty much just decide and go. The analysis is the same. The first thing you have to decide is which direction you’re going to go. The next thing you have to decide is which market (or markets) you’re going to invest in. Next, you start reaching out to realtors and/ or brokers to describe what you’re looking for. The more succinct you can be with this conversation, the more likely you are to receive properties that match your strategy. For example, do you like the idea of buying something that is already performing and has an established cash flow? Or do you prefer to increase the value and do a “forced appreciation” play by rehabbing (for 2-4 units) or increasing NOI (for 5+ units)? For small multifamily, the forced appreciation strategy is the BRRR strategy. You may have heard of it before - Buy, Renovate, Rent, Refinance (and of course, repeat). For apartments, the strategy can involve a lot more pieces - the ultimate thing you’re doing is increasing the Net Operating Income. Sometimes increasing the NOI involves some rehabbing but not always. Sometimes, it just involves recognizing that the previous owner missed all sorts
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