5–10 unit apartment buildings sit in an interesting gap: too small to be institutional, too big to qualify for residential financing. This is what makes them attractive — less competition, better cap rates than 2–4 unit product, and financing that most investors don't know how to navigate.
Why 5-10 Units Hit Differently
When you cross 5 units, you move from residential lending to commercial lending. That means the property is underwritten on its income — not your personal income. Banks care about NOI and DSCR, not your W-2. This is actually better for sophisticated investors because it means you can scale without hitting personal income limits.
Financing Options for 5-10 Units
DSCR multifamily loans start around 6.375% for purchase at low leverage with max prepay. Agency lenders like Freddie Mac Small Balance and Fannie Mae DUS are active down to 5 units but require professional property management and higher reserves. Bridge loans at 9–11% for value-add plays where you're filling vacancies and rehabbing units. Commercial bank portfolio loans are another option but require full docs and a banking relationship.
How to Analyze a 5-10 Unit Deal
Calculate Gross Rent Multiplier (GRM) and cap rate to compare deals. Take gross scheduled rent, subtract vacancy (typically 5–10%), subtract operating expenses (taxes, insurance, maintenance, management — typically 40–50% of effective gross income) to get NOI. Divide NOI by purchase price to get cap rate. In Florida's major metros, 5–7% cap rates are typical for stabilized small multifamily.
The magic number: A 5-unit building with average rent of $1,200/unit generates $72,000/year gross. At 45% expense ratio, NOI is ~$39,600. At 6.5% cap, that's a $609K valuation. At 5% cap, it's $792K. Know your market's cap rates before making offers.
