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How to Finance a Two-to-Four Unit BRRRR Deal
By Jason Taken · Principal
BRRRR on duplexes and small multifamily — hard money acquisition, rehab draws, and DSCR exit on 2–4 units.
Small multifamily BRRRR uses hard money or bridge for acquisition + rehab, then DSCR for hold. Chicago two-flats and DC row homes need local comp and permit fluency — not template SFR underwriting.
Multifamily construction loans · DSCR for investment property.
Two-to-four unit BRRRR stack
| Step | Product | Rate band |
|---|---|---|
| 1. Acquire + rehab | Hard money / bridge | 8.99%–13.5% IO |
| 2. Stabilize units | IO carry continues | Same |
| 3. Refi / cash-out | DSCR | 5.75%–10.5% |
Small multifamily needs aggregate rent on triplex/fourplex — not single-unit math. Chicago two-flats and DC row homes require local comp and permit fluency.
Worked example — Chicago two-flat BRRRR
| Line | Amount |
|---|---|
| Purchase | $320,000 |
| Rehab (both units) | $85,000 |
| All-in | $405,000 |
| ARV | $520,000 |
| Hard money 90% LTC | $364,500 |
| Cash to close + reserves | ~$55,000 |
| Stabilized rent (both units) | $3,800/mo |
| DSCR refi at 75% LTV | $390,000 |
Chicago two-flat financing · multifamily construction · DSCR for investment property
Insurance and tax on 2–4 units
Small multifamily carries higher per-door insurance than SFR — model in DSCR:
| Line | 2-unit example |
|---|---|
| P&C annual | $3,500–$6,000 |
| Property tax | Varies — reassess on purchase |
| Water/sewer (owner-paid) | $150–$300/mo |
| Vacancy (5%) | Budget in pro forma |
Chicago and DC add compliance costs — RLTO, TOPA, rent registration.
Permits on multifamily rehab
Permit timeline on two-flat gut rehab: 8–16 weeks in Chicago vs 4–8 weeks suburban. Extend hard money term or budget extension. Chicago two-flat guide · 8.99%–13.5% IO bridge · 5.75%–10.5% exit
Focus-market nuance — Chicago and DC
| Market | Extra diligence |
|---|---|
| Chicago | RLTO, water cert, lead service line |
| DC | TOPA, rent control exemptions, condo rules |
| Atlanta | Beltline comp discipline, insurance |
| Charlotte | Light rail rent premium verification |
National template underwriting misses these — use focus-market lenders when compliance affects timeline.
Unit mix and rent roll presentation
Submit per-unit rent even when one lease covers building — underwriters stress weakest unit rent. Jaken Finance Group bridge 8.99%–13.5% IO → DSCR 5.75%–10.5%.
Refi seasoning — when DSCR unlocks after rehab
Most DSCR programs require documented rent before cash-out or rate-and-term refi:
| Requirement | Typical threshold |
|---|---|
| Lease in place | Executed lease on each unit |
| Rent seasoning | 0–90 days (program-dependent) |
| Appraisal | As-is with rent schedule |
| Seasoning from rehab close | 30–90 days |
Start marketing units 30 days before rehab completion so leases execute when CO is issued — not after.
Cash-out vs rate-and-term — BRRRR math
| Refi type | LTV cap | Best when |
|---|---|---|
| Rate-and-term | Up to 85% | You want max proceeds out |
| Cash-out | Up to 80% select markets | You need capital for next deal |
On the Chicago two-flat example ($520K ARV, $390K refi at 75%), rate-and-term pulls ~$25K equity. At 80% cash-out ($416K), you pull ~$51K but pay a slightly higher rate band — model both on the DSCR calculator.
DC row-home nuance — TOPA and lease timing
DC conversions trigger Tenant Opportunity to Purchase Act notice periods when existing tenants occupy the building. A four-unit row rehab may add 60–120 days to your hold before you can lease at market rent. Extend hard money term upfront — do not assume a 9-month flip timeline on occupied DC stock.
Hard money holdback — release timing on multifamily rehab
Multifamily rehab draws release per unit or per milestone — not lump sum at close:
| Milestone | Typical release |
|---|---|
| Demo + rough MEP | 25%–30% of rehab budget |
| Kitchen/bath per unit | 15%–20% per unit |
| Final CO | 10% retainage |
Plan carry cost for sponsor-funded expenses between draws. Inspectors who delay sign-off on unit 3 while unit 1 is complete can push your refi date 30 days — negotiate extension options on the hard money term sheet at origination.
Utility separation — rehab line item that unlocks DSCR
Converting a master-metered two-flat to separate utilities per unit raises NOI 8%–15% and simplifies DSCR underwriting:
| Upgrade | Cost per unit | Rent impact | DSCR impact |
|---|---|---|---|
| Separate electric meters | $800–$2,500 | Tenants pay direct | Lower opex ratio |
| Separate gas meters | $1,200–$3,500 | Same | Same |
| Separate water submeters | $2,000–$5,000 | Same | Same |
| Full separation (all three) | $4,000–$10,000/unit | $50–$100/mo rent bump possible | Opex drops 5–8 pts |
Hard money rehab budgets should line-item utility separation before refi — not after. Appraisers and DSCR underwriters treat master-metered buildings as higher opex even if tenants reimburse informally.
Separate HVAC per unit — capex vs refi timing
Two-flats with one shared boiler create vacancy risk during refi — if the boiler fails, all units are affected:
| System | Rehab cost | Refi benefit |
|---|---|---|
| Split HVAC per unit | $6K–$10K per unit | Lower maintenance reserve |
| Individual water heaters | $1,200–$2,000 per unit | Standard for DSCR |
| Shared boiler (status quo) | $0 now | Higher reserve assumption |
Chicago vintage two-flats often need separate HVAC to hit market rent on the Chicago two-flat BRRRR underwriting comps — budget it in the hard money scope, not as post-refi capex.
Garage ADU conversion — financing nuance on fourplex
Adding a legal ADU in a detached garage increases unit count and ARV but triggers permit and zoning review:
| Stage | Product | Note |
|---|---|---|
| Acquire fourplex | Hard money | Underwrite as 4-unit |
| Permit ADU conversion | Hard money holdback | Zoning must allow |
| Complete ADU + CO | Hard money extension possible | 5th unit not counted until CO |
| Refi | DSCR as 5-unit? | Often still 4-unit legal — verify zoning |
DC and Chicago ADU rules differ sharply — a garage conversion that adds $800/mo rent may take 6–12 months to permit. Extend hard money term upfront if ADU is part of the BRRRR thesis.
2–4 unit BRRRR — sequence the capital stack
BRRRR on duplex through fourplex means three distinct financings: acquisition/rehab, lease-up, and DSCR refi. Hard money or bridge at 8.99%–13.5% IO funds the buy and rehab; the permanent leg is DSCR on triplex and fourplex once units are leased and appraised. Decide upfront whether you are building a hold portfolio or optimizing for a quick sale — fix and flip vs BRRRR on small multifamily compares the math on the same ARV. Chicago and DC investors should read the Chicago BRRRR strategy guide and DSCR loans Washington DC for local permit, seasoning, and rent-control nuances. Line up your refi lender before rehab starts so lease requirements and reserve minimums do not surprise you at month six.