A real estate investor who went from having $1,000 in his checking account to building a

It’s “one of the safest ways that you can start investing in real estate,” said Washington State Trooper and real estate investor Mike Newton, who acquired 10 units across eight properties in about four years. 

Newton didn’t have a lot of money to gamble with: He had practically nothing in savings when he decided he wanted to invest in real estate in 2018. He then spent six months working 90-hour weeks in order to save enough to buy his first property: a $450,000 duplex outside of Seattle. 

After closing in November 2018, Newton moved into one of the units. The other half of the duplex was already filled with a tenant and he immediately started earning $1,600 a month in rental income, he told Insider. Plus, a childhood friend moved into one of the three bedrooms in Newton’s half of the duplex and paid $500 a month in rent. 

The $2,100 in rent from his two tenants covered the majority of his $2,750 monthly mortgage payment, “but even if they both lost their jobs and couldn’t pay me, I could still make the payment on my own with my 9-to-5 job,” he said. “I wanted to create multiple layers of protection.”  

If you go this route and intend to occupy the property for at least 12 months, you can take advantage of owner-occupied financing and get in with a smaller down payment than if you were buying a true investment property that you intended to fill with tenants. That’s because lenders see investment property loans as riskier than primary home loans. 

“Most traditional lenders are going to require 20% down for an investment property, unless you are doing owner-occupied financing,” explained Newton. “Then, you can potentially get in with as low as 3.5% — and sometimes even 0% with a VA loan.”

As an owner-occupant, Newton was able to buy his duplex with a 5% down payment, meaning he needed $22,500 upfront. That was much more attainable for him than saving 20% (which, on a $450,000 home, is $90,000). 

He still lives in the duplex and, since rental prices have increased over the past four years, his monthly housing payment is closer to $300 now. That allows him to save the majority of his salary and save up for future investments. 

Newton’s not the only seasoned investor who believes that multi-family properties are a good entry-level approach to real estate. 

Massachusetts-based real estate investor and consultant Dana Bull, who is financially independent thanks to her rental portfolio, only acquired multi-families. She calls them “triple-headed monsters” because there are three main financial benefits to investing this way.

For starters, there’s what she calls “the acquisition discount.” 

Massachusetts-based real estate investor Dana Bull in front of one of her properties.

Courtesy of Dana Bull

If you buy a multi-family, you’ll likely pay less than if you were to go out and buy two to four separate condos or apartments, she explained: “Say you’re buying a three-family building that is $900,000. If you were to buy each of those as condos, maybe you’d be paying a total of over $1 million. If you buy them all together, you get that discount.”

You also get economy of scale when you own a multi-family. Think about the maintenance required for a multi-family home versus a single-family home, she said: “If you buy a three-family, when the roof goes out, you only have one roof to replace. You have one driveway to shovel. You have the shared hallways to take care of.”

Homeowner maintenance adds up, and it can be a lot simpler and cheaper to own a multi-family investment property rather than a couple of single-family homes.

Another New England-based investor advises real estate new-comers to start with multi-family properties. Matt, who prefers to go by “The Lumberjack Landlord” and owns over 100 units in New Hampshire, specifically recommends trying a “4, 3, 2, 1” strategy.

The idea is to start off by purchasing a “fourplex,” a low-density four-unit residential building, and live in one unit while renting out the other three. 

“You can see if you actually like being a real estate investor,” he said about the method, which provides a new investor with immediate cash flow. If you enjoy the process of buying, renting, and managing tenants, and want to expand your portfolio from there, you then repeat the process, but at different levels of expense and effort. 

Real estate investor Matt “The Lumberjack Landlord” and his family.

Courtesy of Matt and Ashley

For instance, should one decide to continue following the “4, 3, 2, 1” method, the next step after leasing the units in the fourplex would be to purchase a “triplex” (a three-unit building), live in one apartment and then rent the others out. The process continues down the line, with the next step being to purchase and reside in a duplex property while renting out the other half.

By this point, you’ll own a handful of units and your rental income may cover the majority (or all) of your housing costs, which will free up more cash to continue saving and investing in real estate. The final step of Matt’s strategy is to buy a single-family home. “You’re moving up the ladder while having people largely pay your mortgage,” he said.

Note that not all markets have an abundance of multi-family properties. 

His and Bull’s market, both of which are in New England, happens to have a large inventory of these properties. Many of the cities in the region were built in the late 1800s and early 1900s when that style was popular and no zoning restrictions prevented the construction of them. 

If there aren’t multi-families in your area, look for a property with an unfinished basement that you can turn into another unit and rent out, or even a home with multiple rooms that you could rent out, said Matt: “Why not have roommates pay you rent? Why not have their rent help pay your mortgage?”