The Hidden Line That Changes Everything: 1-4 Units vs. 5+ Units in Central Kentucky Real Estate
TL;DR: Residential vs. Commercial Real Estate Investing in Kentucky
The Core Difference: Real estate investing in Lexington, KY and Central Kentucky is divided by unit count, not by license type but is important to pair with a specialist.
- 1-4 Units (Residential): Best for beginners. Easier financing (low down payments), lower interest rates, and valued by comparable sales. Great for duplexes in Georgetown, KY or fourplexes in Richmond, KY. Get acclimated to real estate ownership.
- 5+ Units (Commercial): Best for scaling wealth. Valued by Net Operating Income (NOI), allowing you to force appreciation. Requires higher down payments (25-30%) but unlocks massive growth potential in markets like Frankfort, KY and Nicholasville, KY.
Why It Matters: To maximize returns, you need a brokerage that understands both. Carto Residential helps you start with accessible residential multifamily properties, while Carto Commercial guides you into high-yield commercial real estate development and acquisition.
Key Takeaway: Don't guess. Whether buying your first rental in Lexington or scaling to a 20-unit complex, choose a partner who knows the specific lending, valuation, and management rules for your asset class.
If you drive through Lexington, KY or Richmond, KY, you see them everywhere: duplexes, fourplexes, and small apartment buildings. To the families unpacking boxes inside, these are simply "home."
But if you are an investor looking to build wealth in Central Kentucky, looking at these buildings the same way tenants do is a costly mistake.
There is a hidden line in real estate that most new investors—and even many agents—fail to see. It is the boundary between a four-unit building and a five-unit building. Crossing that line doesn't just add one more front door; it fundamentally changes the rules of the game. It changes how you get financing, how the property is valued, and how much money you can make.
At Carto Commercial and Carto Residential, we help investors across Nicholasville, Frankfort, Georgetown, and Lexington navigate this divide so they can stop guessing and start growing.
The Residential Zone: 1-4 Units (The Stepping Stone)
Whether it is a duplex in Georgetown, KY or a fourplex near the university in Lexington, properties with four units or fewer are classified as residential real estate.
The banks and the government view these essentially the same way they view a single-family home. This is great news for new investors for three reasons:
- Easier Financing: You can often buy these with a residential mortgage. If you live in one unit, you might put as little as 3.5% down. Even as a pure investor, you are looking at roughly 15% down—much lower than commercial requirements.
- Lower Interest Rates: Residential loans typically offer lower rates, saving you thousands over the life of the loan.
- Predictable Valuation: These properties are valued based on "comps" (comparable sales). If houses in Richmond, KY are going up in value, your fourplex likely is too.
The Catch: Your wealth is tied to the market. You can’t "force" the value up significantly just by raising rents, because the appraiser is looking at what the building next door sold for, not just how much profit you are making.
The Commercial Threshold: 5+ Units (The Wealth Builder)
The moment you buy a property with five units or more—whether in Frankfort, KY or downtown Lexington—you have crossed into commercial real estate. The rules flip, and for the savvy investor, this is where the magic happens.
- Income-Based Valuation: Commercial properties aren't valued based on what the neighbor sold for. They are valued based on Net Operating Income (NOI).
- Forced Appreciation: This is the secret weapon of commercial investors. Because value is based on income, you can force the property's value up. If you renovate a 10-unit building in Nicholasville, cut expenses, and raise the rents, the building becomes significantly more valuable immediately. You don't have to wait for the market to appreciate; you create the appreciation yourself.
- Commercial Financing: The barrier to entry is higher (typically 25-30% down), and lenders will scrutinize the property’s financials more than your personal credit. But this allows you to scale beyond the limits of your personal debt-to-income ratio.
Why You Need a Guide Who Speaks Both Languages
Most real estate brokerages are good at one or the other. They either sell houses and dabble in duplexes, or they sell massive commercial developments and ignore the small investor.
This leaves a gap. If you are an investor in Central Kentucky, you need a strategy that bridges the divide.
- Carto Residential helps you maximize the residential advantages of 1-4 unit properties, securing low-money-down assets that build long-term equity.
- Carto Commercial helps you graduate to 5+ unit properties, where you can utilize commercial brokerage expertise to analyze Cap Rates, manage professional operations, and engineer massive returns.
Your Plan to Build a Portfolio
Don't let the complexity of the market paralyze you. Here is how we move forward:
- The Audit: We sit down and look at your capital and goals. Are you looking for a safe, residential entry point in Georgetown, or are you ready for a commercial value-add play in Lexington?
- The Strategy: We determine which side of the "line" fits your current stage. We identify the properties that the general public overlooks.
- The Execution: Whether it’s a residential mortgage or a commercial syndicate, we guide you through the underwriting, negotiations, and closing.
Stop Leaving Money on the Table
The difference between a residential mindset and a commercial mindset can be millions of dollars in lifetime wealth. Whether you are looking in Richmond, Frankfort, Nicholasville, or Lexington, you need a guide who understands the entire landscape.
Ready to cross the line from owning real estate to building an empire?