Here’s something most investors don’t realize: there’s a gap in the apartment market that savvy buyers can exploit.
Big institutional investors—pension funds, REITs, private equity—want massive complexes. They’re writing checks for $50 million, not $500,000. Individual investors typically chase single-family rentals because that’s what they know.
That leaves mid-sized apartment buildings—5 to 12 units—in a competitive sweet spot. These properties are big enough to offer real multi-family economics but small enough that institutions don’t bother with them. Less competition often means better deals.
Let me show you why this property type deserves a closer look.
Why Size Matters in Apartment Investing
The apartment market segments based on property size, and each segment has different characteristics:
| Property Size | Who’s Buying | Competition Level | Your Opportunity |
|---|---|---|---|
| 50+ units | Institutional investors | Fierce | Very limited |
| 20-49 units | Large private investors | High | Moderate |
| 5-12 units | Individual investors | Moderate | Strong |
| 1-4 units | Individual investors | High | Good but different economics |
Large apartment complexes attract institutional capital because they’re worth the management infrastructure those buyers maintain. A pension fund doesn’t want to think about a 6-unit building—it’s not worth their time.
Single-family rentals attract individuals because the entry point is accessible and the learning curve is manageable. But scaling single-family is hard. You end up with scattered properties across multiple locations, each requiring separate management attention.
The 5-12 unit range gives you multi-family benefits without institutional competition. You’re playing in a space the big guys don’t care about.
The Economics of Mid-Sized Apartments
Why do multi-family properties pencil out better than single-family on a per-door basis?
Concentrated operations. All your units are in one location. One trip handles multiple inspections, multiple turnovers, multiple maintenance issues. Compare that to driving across town for each single-family property.
Shared systems. One roof covers multiple units. One boiler heats multiple apartments. The cost per unit of major systems drops as you add doors.
Reduced vacancy impact. If your single-family rental sits empty, you have zero income and 100% expense exposure. In a 10-unit building, one vacancy costs you 10% of income while other units continue paying.
Income-based valuation. Here’s the big one. Small residential properties (1-4 units) are valued based on comparable sales—what similar properties sold for. Commercial properties (5+ units) are valued based on income. Net operating income divided by cap rate equals value.
That income-based valuation means you can force appreciation in multifamily properties. Increase the NOI—through rent increases, expense reduction, or adding units—and you directly increase property value. You’re not waiting for the market to decide what your property is worth.
If income-based valuation and forced appreciation have you eyeing your first 5-to-12 unit building, book a free strategy call with LendCity and we will show you what you qualify for under CMHC or commercial programs.
Finding 5-12 Unit Properties
These properties don’t usually show up on residential MLS searches. You need to look in different places.
Commercial brokers who specialize in multi-family know about these properties before they hit public listings. Build relationships with brokers in your target market.
Direct outreach to building owners can surface opportunities. Drive neighborhoods, identify target properties, and contact owners directly. Many mid-sized buildings are owned by aging investors who might sell to the right buyer.
Online commercial platforms like LoopNet, Crexi, and others list multi-family properties. Set up alerts for your target size range and markets.
Local investor networks often share deals among members. Join local real estate investment groups and let people know what you’re looking for.
Off-market hunting takes more effort but often produces better pricing. Properties that sell without being marketed face less competition.
Analyzing Apartment Deals
Apartment analysis differs from single-family because you’re thinking like a business owner, not a home buyer. Start by learning how to analyze a rental property the right way.
Gross potential income is what the property would generate if fully occupied at market rents. This is your starting point.
Vacancy and collection loss accounts for the reality that units sit empty sometimes and some tenants don’t pay. Budget 5-10% depending on market conditions.
Operating expenses in apartments typically run 35-50% of gross income. This includes property taxes, insurance, utilities (owner-paid), maintenance, repairs, management, and reserves for capital items.
Net Operating Income (NOI) is what remains after operating expenses. This is the number that determines value.
Cap Rate Calculation Guide for Investment Decisions represents the return the property generates independent of financing. If a property has $100,000 NOI and sells for $1,000,000, the cap rate is 10%. Research cap rates for similar properties in your market to evaluate whether asking prices are reasonable.
Debt service (your mortgage payment) comes out of NOI to determine cash flow.
Commercial loans with 20 to 35 percent down and debt service coverage requirements can feel overwhelming at first — book a free strategy call with us so we can walk through the numbers on a specific deal you are considering.
Due Diligence for Apartments
Before you buy, you need to verify everything.
Financial verification: Get actual rent rolls, not pro forma projections. Review bank statements showing deposits. Examine expense documentation—utility bills, tax bills, insurance policies, maintenance invoices. Compare historical trends to current claims.
Physical inspection: Apartments require thorough inspection of building systems (HVAC, plumbing, electrical), structural elements (roof, foundation, building envelope), common areas, and individual unit conditions. Hire professionals who inspect commercial properties, not just home inspectors.
Tenant analysis: Review all leases. Understand when leases expire and at what rents. Assess payment history. Identify tenants paying below market (opportunity) or above market (retention risk).
Capital needs assessment: What major repairs or replacements are coming? Roofs, boilers, parking lots, appliances—these items need funding. Deferred maintenance becomes your problem after closing.
Financing Apartment Buildings
The financing world changes at 5 units. You’re now in commercial territory. Understanding your multifamily mortgage financing options is critical before you start shopping for buildings.
Commercial loans have different characteristics than residential mortgages: shorter terms (5-10 years typically), balloon payments requiring refinancing, rates based on property performance not just borrower credit, and debt service coverage ratio requirements.
Down payment requirements typically run 20-35% for apartment buildings. Lenders want to see you have skin in the game and reserves beyond the down payment.
CMHC-insured financing may be available for qualifying properties, offering better rates and terms in exchange for meeting program requirements. Learn more about financing multifamily properties in Canada.
Use our MLI Select Calculator to estimate your maximum CMHC loan amount based on the building’s income and your target terms.
Relationship lending matters more in commercial. Build relationships with lenders before you need them. Local banks and credit unions often serve this market segment well.
Managing Mid-Sized Apartments
5-12 units is a manageable size for hands-on investors, but it requires real work.
Tenant relations become more complex with multiple households. You’re managing a small community, not just a single family.
Maintenance coordination requires systems—tracking requests, scheduling vendors, following up on completion.
Turnover management happens more frequently. With 10 units, you might have 2-3 turnovers annually even with reasonable retention.
Rent collection and accounting need formal processes. You’re running a business.
Professional management becomes viable at this scale. Management fees (typically 8-12% of collected rent) hurt less when spread across multiple units. The right property management software for Canadian investors can streamline rent collection, maintenance tracking, and tenant communication across all your units.
Whether you self-manage or hire out depends on your time, skills, and proximity to the property. Many investors start self-managing to learn, then transition to professional management as portfolios grow. For guidance on scaling, see our guide on how to build an 80 million dollar real estate portfolio.
Building Your Apartment Team
Success requires professional support:
Commercial real estate agent who understands multi-family valuation and transaction processes. Different expertise than residential agents.
Commercial mortgage broker with access to lenders serving this property type. They know which lenders are competitive for different deal sizes. Review our guide on how to finance your first multifamily building for detailed financing options.
Real estate attorney experienced in commercial transactions. The contracts are different.
Commercial property manager if you won’t self-manage. Interview multiple options and check references from other building owners.
Commercial appraiser who understands income-based valuation.
Common Mistakes to Avoid
Underestimating management burden. Managing 10 doors is not just twice as hard as 5. The complexity increases non-linearly.
Treating it like a big house. Apartments are businesses. They require business thinking about income, expenses, systems, and operations.
Overpaying based on potential. Buy based on current performance, not projections of what might happen after you “implement your plan.”
Insufficient reserves. Capital expenses in apartments can be substantial. A roof on a 10-unit building costs a lot more than a single-family roof.
Ignoring tenant quality. Inherited tenants might not be the tenants you’d choose. Factor turnover costs into your analysis.
Frequently Asked Questions
What makes 5-12 units the "sweet spot" for investing?
How much capital do I need for apartment investing?
Should I self-manage or hire property management?
What cap rate should I target?
How do I find apartment properties this size?
How does commercial financing differ from residential mortgages?
What operating expense ratio should I expect for a small apartment building?
The Bottom Line
Mid-sized apartment buildings—5 to 12 units—offer a compelling opportunity for individual investors willing to learn commercial real estate fundamentals. Less competition from institutional buyers, multi-family economics, and income-based valuation combine to create advantages that single-family investing can’t match.
The learning curve is steeper. The capital requirements are higher. The management demands are real. But for investors ready to level up from single-family, this property type represents a logical next step toward building meaningful portfolio scale.
Don’t compete where the institutions play. Find the spaces they ignore. Mid-sized apartments are one of those spaces.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Consult a licensed mortgage professional before making any financing decisions.
Written by
LendCity
Published
January 30, 2026
Reading time
8 min read
Cap Rate
Capitalization Rate - the ratio of a property's net operating income (NOI) to its current market value or purchase price. A 6% cap rate means the property generates $60,000 NOI annually on a $1,000,000 value. Used to compare investment properties regardless of financing.
NOI
Net Operating Income - the total income a property generates minus all operating expenses, but before mortgage payments and income taxes. Calculated as gross rental income minus vacancies, property taxes, insurance, maintenance, and property management fees.
Vacancy Rate
The percentage of rental units that are unoccupied over a given period. A critical factor in cash flow analysis, typically estimated at 4-8% for conservative projections.
DSCR
Debt Service Coverage Ratio - a metric that compares a property's net operating income to its mortgage payments. A DSCR of 1.25 means the property generates 25% more income than needed to cover the debt. Lenders typically require a minimum DSCR of 1.0 to 1.25 for investment property loans.
Commercial Mortgage
Financing for commercial properties like retail, office, or multifamily buildings with 5+ units, with different qualification criteria than residential mortgages.
Down Payment
The upfront cash payment when purchasing a property. For 1-4 unit investment properties, minimum 20% down is required. 5+ unit multifamily can use CMHC MLI Select with lower down payments, and house hackers can put as little as 5% down on owner-occupied 2-4 plexes.
Coverage Ratio
A measure of a property's ability to cover its debt payments, typically referring to DSCR. Commercial lenders often require a minimum of 1.2, meaning the property's net operating income exceeds debt payments by at least 20%.
CMHC Insurance
Mortgage default insurance from Canada Mortgage and Housing Corporation. For 1-4 unit investment properties, investors must put 20%+ down (no insurance available). However, CMHC offers MLI Select for 5+ unit multifamily properties, and house hackers can access insured mortgages with 5-10% down.
Commercial Lending
Financing for commercial real estate or business purposes, typically qualified based on property income (NOI) rather than personal income. Includes mortgages for multifamily buildings (5+ units), retail, office, and industrial properties.
Cash Flow
The money left over after collecting rent and paying all expenses including mortgage, taxes, insurance, maintenance, and property management.
Appreciation
The increase in a property's value over time, which builds equity and wealth for the owner through market growth or forced improvements.
Equity
The difference between a property's current market value and the remaining mortgage balance. If your home is worth $500,000 and you owe $300,000, you have $200,000 in equity. Equity builds through mortgage payments, appreciation, and property improvements.
Multifamily
Properties with multiple dwelling units, from duplexes to large apartment buildings. Often offer better cash flow and economies of scale.
Single Family
A detached home designed for one household, the most common property type for beginner real estate investors.
Refinance
Replacing an existing mortgage with a new one, typically to access equity, get a better rate, or change terms. Investors commonly refinance to pull out capital for purchasing additional properties (cash-out refinance) while retaining ownership of the original property.
Property Management
The operation, control, and oversight of real estate by a third party. Property managers handle tenant screening, rent collection, maintenance, and day-to-day operations.
Due Diligence
The comprehensive investigation and analysis of a property before purchase, including financial review, physical inspection, title search, and market analysis.
Mortgage Broker
A licensed professional who shops multiple lenders to find the best mortgage rates and terms for borrowers. Unlike banks, brokers have access to dozens of lending options.
Turnover
The process and cost of preparing a rental unit for a new tenant after the previous tenant moves out, including cleaning, repairs, marketing, and vacancy time. High turnover rates significantly reduce profitability through lost rent and preparation expenses.
HVAC
Heating, Ventilation, and Air Conditioning systems that control temperature and air quality in buildings. HVAC is often one of the largest energy expenses in rental properties, and upgrading to high-efficiency systems can significantly reduce operating costs and increase NOI.
Deferred Maintenance
Necessary repairs and maintenance that have been postponed or neglected, creating a backlog of work that will eventually require attention. Properties with significant deferred maintenance can be value-add opportunities for investors willing to address accumulated issues.
Operating Expenses
The ongoing costs of running a rental property, including property taxes, insurance, maintenance, property management fees, utilities, and repairs. Subtracting operating expenses from gross rental income yields the net operating income.
Comparable Properties
Similar properties in the same market area used to establish fair market value or rental rates through comparison of features, location, condition, and recent sale or rental prices. Analyzing comps is essential when determining offer prices and setting competitive rents.
Pro Forma
A projected financial statement for an investment property showing expected income, expenses, and returns. Pro formas are used to evaluate potential acquisitions and are required by many commercial lenders during underwriting.
MLS
Multiple Listing Service - a database used by licensed real estate agents to list properties for sale, providing standardized property information, photos, and pricing. Investors also use off-market strategies to find deals not listed on the MLS.
Real Estate Agent
A licensed professional who represents buyers or sellers in real estate transactions, providing market expertise, negotiation skills, and access to the MLS. Working with an investor-friendly agent who understands rental property analysis and financing strategies can significantly impact deal quality.
Forced Appreciation
An increase in property value driven by the owner's actions rather than general market conditions. Strategies include renovations, increasing rents, reducing vacancies, or cutting operating expenses. In commercial real estate, raising NOI directly increases the property's income-based appraised value.
Plumbing
The system of pipes, drains, fixtures, and fittings in a building that distributes water and removes waste. Plumbing issues are among the most costly repairs in rental properties, and older galvanized or polybutylene pipes often need replacement during renovations.
Foundation
The structural base of a building that transfers loads to the ground. Foundation issues such as cracks, settling, or water intrusion are among the most expensive repairs in real estate and can significantly impact property value and financing eligibility.
Hover over terms to see definitions. View the full glossary for all terms.