BRRRR Method Multifamily: What Changes on Duplexes and 2-4 Units

The BRRRR method for multifamily property follows the same five steps you use on a house, with one break point that changes the math: two to four units are valued by comparable sales, and five units and up are valued by income. Below that line you are working on a bigger house. Above it you are a commercial borrower.

That single difference decides how much cash comes back out at the refinance.

Where a duplex is just a bigger house

A duplex is residential property to both a lender and an appraiser. So is a triplex or a fourplex. Fannie Mae and Freddie Mac buy conforming loans on one to four unit properties, and appraisers value them with the sales comparison approach, the same method used on a single-family home.

So the standard BRRRR numbers carry over with no edits. Buy for $300,000, spend $60,000 on the rehab, and reach a $500,000 after-repair value. Refinance at 75% of that value and the new loan is $375,000. Your $360,000 comes back with $15,000 on top toward soft costs.

Rent of $4,400 a month on a duplex is two units at $2,200 each. Holding costs of $850 a month, $6,000 of property tax and $2,500 of insurance do not care how many front doors the building has.

The practical upside of two to four units is that one vacancy no longer empties the property. The downside is that one vacancy in a duplex is still a 50% vacancy.

Two to four units against five and up

	2 to 4 units	5 units and up
Appraisal basis	Comparable sales	Income
Loan type	Residential	Commercial
Qualifying test	Your credit and income, or DSCR	The building’s cash flow
Typical term	30-year fixed is common	5 to 10 years, longer amortization
Appraisal cost	Hundreds of dollars	Often a few thousand
Appraisal time	Days	Weeks

The row that matters most is the first one. Everything else follows from it.

Value by income instead of by comps

At five units and up, an appraiser uses the income approach: divide net operating income by a market cap rate to get value. Comps still inform the cap rate, but they no longer set the price directly.

Value = NOI / cap rate

Run the same $4,400 of monthly rent through that formula. Gross rent is $52,800 a year. Take out 5% for vacancy, $6,000 of taxes, $2,500 of insurance, roughly 8% for management and 8% for repairs and reserves, and NOI lands near $33,000.

Now the cap rate does the work. At a 6.5% cap that NOI is worth about $508,000. At 7% it is about $474,000. At 8% it is about $413,000.

Cap rates are local. They come out of recent sales of similar income property in the same market, and they move with interest rates, so the only honest source is a broker or appraiser who tracks your submarket.

Watch what that does to the refinance. On the comps-based $500,000 value, 75% is $375,000 and you get everything back. On an 8% cap valuation of $413,000, 75% is $309,750, and you leave about $50,000 in the deal with the same purchase price, the same rehab and the same rent.

One more consequence: raising rent $100 a unit is no longer just cash flow. At a 7% cap, $100 a month across two units adds about $2,400 of NOI and roughly $34,000 of value.

Rehabbing with tenants in place

Multifamily deals often come occupied, and that changes the rehab plan more than the budget does.

Ask for every lease, the rent roll and a signed estoppel from each tenant before closing. Verbal rent claims are worth nothing at the appraisal.

Work unit by unit. Renovate vacant units first, raise rents there, then turn the next unit as its lease ends. A two-unit building can carry half its rent while the other half is torn up, which a single-family rehab cannot do.

Budget cash for keys if you need an occupied unit empty early. It is usually cheaper and faster than the legal route, and a tenant who leaves on terms does not damage the unit on the way out.

Plan for property management sooner than you would on houses. Four doors with four lease dates and four sets of maintenance calls is a different job from one tenant on one annual lease.

Loan options as the unit count grows

Two to four units get the widest menu: conventional investor loans, FHA with an owner-occupied unit, hard money for the purchase and rehab, then a long-term refinance.

At five units the menu narrows to commercial debt, bank portfolio loans, credit unions and agency multifamily programs for larger properties. Expect a term of five to ten years with a 20 to 30 year amortization, plus a balloon at the end.

DSCR lenders bridge the gap and many will do both sizes. The DSCR refinance guide covers how that ratio is calculated and what coverage lenders want.

What to add to your numbers per unit

Per-door costs are what beginners miss when they step up from houses.

• One furnace, water heater and set of appliances per unit, so your CapEx reserve multiplies by unit count
• Turnover cost per unit, paint and cleaning and a few vacant weeks each time
• Management at a percentage of collected rent, often with a minimum per door
• Insurance priced for a multi-unit dwelling rather than a single home
• Utilities you cannot submeter, which land on you by default
• Separate smoke, egress and inspection requirements that scale with units

Also check the assessor. In some jurisdictions a five unit building is taxed under a commercial class, which can move the tax line well away from the $6,000 in the example.

Run your unit count through the calculator

The BRRRR Calculator on the home page handles two to four units exactly as written, since the refinance is a percentage of appraised value either way. For five units and up, value the property at NOI divided by your market cap rate first, then enter that figure as the after-repair value to see what the refinance actually returns.