Most rental portfolios are built one purchase at a time, and the first rule matters more than the fifth property: know what you will buy before you look. Here is one investor’s path from a single house to five units in three properties, with every number run through the same calculators. The prices, rents and the 7% loan rate are examples.
Set the buy criteria first
Two quick filters sort a list of listings in minutes:
- One percent rule: monthly rent at least 1% of the price.
- Gross rent multiplier: price divided by a year of rent. Lower is cheaper per dollar of rent.
Neither sees expenses, so the survivors get a full NOI: rent less a 5% vacancy allowance, tax, insurance, repairs and any utilities the owner pays. Divide by price for the cap rate. Here are the three properties this investor bought, self-managed:
| House A | Duplex B | Duplex C | |
|---|---|---|---|
| Price | $240,000 | $360,000 | $330,000 |
| Rent a month | $2,000 | $3,200 | $2,900 |
| One percent rule | 0.83% | 0.89% | 0.88% |
| GRM | 10.0 | 9.4 | 9.5 |
| NOI a year | $16,560 | $25,440 | $22,860 |
| Cap rate | 6.9% | 7.1% | 6.9% |
None passes the 1% rule, which is common in higher-priced markets; all three pass a 6.5% cap rate test. Check any row yourself: House A in the NOI calculator, then the cap rate calculator.
Unit 1: the house
Under the conventional loan guidelines most lenders follow, a one-unit investment property needs at least 15% down. On House A that is $36,000, plus closing costs, plus six months of the new payment in reserves.
Borrow $204,000 at 7% for 30 years: $1,357.22 a month, $16,286.64 a year. NOI of $16,560 leaves $273 a year.
That is close to break-even, and it is typical of a first rental bought at today’s rates. The return is in the loan paydown, about $4,300 in the first two years, and in whatever the market does to the price.
Units 2 and 3: the duplex
Two to four units need 25% down: $90,000 on Duplex B. The payment on the $270,000 loan is $21,555.84 a year against $25,440 of NOI, so the duplex clears $3,884. Two units under one roof, one tax bill and one insurance policy is how small multifamily can earn more per dollar than a single house.
Units 4 and 5: where the reserve rule bites
Duplex C needs $82,500 down, and now the reserve rule reaches the rest of the portfolio. Lenders count every financed property, including a mortgaged home. With the home, House A, Duplex B and Duplex C, that is four, so reserves are:
Six months of Duplex C’s payment with tax and insurance: 6 × $2,176.62 = $13,059.72.
Plus 2% of the balances on the other financed rentals: 2% × ($199,706 + $267,257) = $9,339.26.
Total: $22,398.98 in the bank after closing, on top of the down payment.
The percentage rises to 4% at five or six financed properties and 6% at seven to ten. Ten is the most the conventional guidelines allow. After that, investors move to commercial or portfolio loans.
Read it as one portfolio
| Self-managed | With 8% management | |
|---|---|---|
| NOI | $64,860 | $57,473 |
| Cap rate on $930,000 | 7.0% | 6.2% |
| Loan payments | $57,602 | $57,602 |
| Cash flow | $7,258 | −$129 |
Five units and $208,500 of down payments produce $7,258 a year, a 3.5% cash-on-cash return on the down payments, as long as the owner does the managing. Hire a property manager and the cash flow disappears; the portfolio cap rate drops to 6.2%.
The reason is the loan. At 7% for 30 years, payments run about 8% of the amount borrowed each year. A property earning a 7% cap rate pays less than that on every borrowed dollar, so leverage lowers the cash return while it raises the equity you control. That is fine if you planned for it and dangerous if you counted on cash flow to cover a vacancy.
Why five units ride out a vacancy better than one
Scale does one thing for you that no single property can: it spreads vacancy.
With only House A, two empty months cost $4,000, or 16.7% of the year’s $24,000 of rent, more than three times the 5% vacancy allowance and roughly 15 years of that house’s cash flow.
With all five units renting for $8,100 a month, $97,200 a year, the same two empty months on one $1,450 duplex unit cost $2,900: 3.0% of the portfolio’s rent, inside the allowance.
The same logic applies to repairs. A $9,000 roof is a crisis for a one-house owner running $273 of yearly cash flow and a line item for a five-unit owner with reserves. This is the practical case for growing to a handful of units before stretching for a bigger building: the portfolio absorbs the surprises that sink a single rental.
Funding the next purchase
- Savings. Slow and safe. The reserve rule means each purchase needs more cash than the last.
- A cash-out refinance or the BRRRR method. Pull equity from a property that has gained value. The BRRRR guide works through the refinance and its waiting period.
- A 1031 exchange. Sell one rental and buy a bigger one without paying tax on the gain yet. The deadlines are strict; the rental tax mistakes guide lists them.
- Partners. More buying power, more to agree on. The guide to how small landlords hold rentals covers partnership and LLC structures.
Keep the portfolio legible
Keep one rent roll for every unit: tenant, rent, lease end and deposit. Update it the day a lease is signed or a tenant gives notice, and review it every quarter against the leases. Spread lease ends across the year so two vacancies do not land in the same month, and keep each property’s money in its own ledger so you can see which one is carrying the others.
Five units in one neighborhood is simpler to run and riskier to own: one employer closing or one tax reassessment reaches all of them at once. The next purchase is a good time to decide how much of that risk you want.
Questions people ask
How many rental properties can I finance with conventional loans?
Under the conventional guidelines most lenders follow, up to ten financed properties, counting your own home if it has a mortgage. Beyond that, investors usually move to commercial or portfolio loans, which lenders price and write differently.
Is the one percent rule still realistic?
In many markets it is hard to meet. Treat it as a filter, not a verdict: a rental at 0.8% or 0.9% can still work if its expenses are low. Rebuild the NOI and compare cap rates before you decide.
When should I hire a property manager?
When your time is worth more than the fee, or when the units are too far to reach. Fees of 8% to 10% of collected rent are common. In the example here, the fee turns a five-unit portfolio from about $7,300 a year of cash flow to break-even.
Written by LoomLease editors. Published September 30, 2026. Plain English, not legal, tax or financial advice: your lease, your state’s law and a professional who knows your situation decide what applies.