Fourplex Pros, Cons, & Tips For Investors | BiggerPockets Blog

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Fourplex might be a good place to start if you’re thinking of testing the waters as a residential real estate investor. It’s also a good investment for a first-time home buyer, as you can live in one of the four-story units and rent out the others – the tenants pay you the mortgage. If you want it strictly as an investment property, this isn’t a problem, although it may limit some attractive financing options.

What is Fourplex?

Fourplex is a multi-family home with four separate units under one roof. You may also hear it referred to as a quadplex. Each unit has its own entrance. Some of the four floors include a common entrance to the building with separate interior entrances for each unit. Units are either side by side or stacked on top of each other.

From the street, a shared quad entry might look like a large single-family home.

Fourplex Investing Pros

There are plenty of reasons to invest in four storeys. Here are some of the best:

Additional cash flow potential

If you’re looking for cash flow, a quad phase is a better deal than two to three unit properties. Each unit represents an income stream.

appropriate funding

Quintplex is not a term most real estate investors use. This is because once a multi-family building exceeds four units, it is considered commercial property, not residential. This makes financing for four floors more convenient, as you can get a residential mortgage rather than the commercial loan needed for five or more units.

One mortgage for multiple doors

Buy several single-family homes as investments, and you’ll likely pay a separate mortgage for each property. If you live on one floor, you have one mortgage payment and one property tax bill. Paperwork and record keeping simpler.

economic scale

Since you have four units, you’ll pay less on expenses due to economies of scale. This is true of insurance, lawn care, and snow shoveling.

tax advantages

You’ll pay less property taxes on four floors than if you bought four separate rental properties. You may receive other tax breaks, such as real estate depreciation and investment tax deductions.

The loss of the tenant is less impactful

When the tenant moves out, you lose money if the property remains vacant. However, if you are a dual landlord and rent out one unit, you will lose all rental income if the tenant leaves. When a tenant moves out on a quad floor, you still have rents coming in from two to three units, depending on whether you’re a landlord in the location.

Cons of Fourplex Investing

For all the positives, there are still a few reasons why fourplex is not suitable for every new investor. Consider if you can handle the following before investing in four floors.

Management responsibilities

It is one thing for the investor to manage one or two other units himself. Properly managed fourplex takes a lot of time and effort. If you do not reside in one of the units, you are dealing with at least three and possibly four separate tenants. Manageability is one of the reasons why the demand for four-sided is much lower than that of two- or three-sided. Of course, it’s still easier to manage four floors than to take care of four separate single-family properties. Many investors hire a property management company to oversee their four-story buildings.

Harder to sell

Because there is less demand for four decks than duplexing properties, it is often difficult for owners of four decks to sell when the time comes.

Less privacy

If you use one of the units as your residence, expect tenants to knock on your door when issues arise. Expect less privacy when you’re the owner of four stories on the site. On the plus side, when repairs are needed, or emergencies occur, you’re right instead of having to go to your tenant. While you enjoy less privacy, you benefit from more comfort.

High tenant turnover

Fourplexes tend to have higher renter turnover than single-family dwellings. For renters, four-story buildings tend to be starter living spaces. Many four-story renters wait until the single-family housing market becomes more attractive or save up a down payment large enough to move.

How to find Fourplex

Work with a local real estate agent or use the MLS to find four available floors. BiggerPockets proxy finder He can match you with an investor-friendly agent who specializes in multi-family property deals.

If there is no adequate inventory of four-story condominiums in your target local housing market, contact the area’s four-block owners and ask if they are considering selling. Find the landlord by visiting the municipal tax estimator or county recorder’s website. Information from the assessor will include current property taxes.

Fund your Fourplex

When it comes to financing, the fourplex has many advantages. Fourplex doesn’t meet the five-unit requirement for a business loan, so you can take out a traditional 30-year fixed mortgage home loan for this investment.

Regardless of the current interest rate environment, Residential mortgages It has lower rates than commercial loans.

FHA loans

Finance is most beneficial when using a Federal Housing Administration Loan (FHA). The minimum down payment for an FHA loan is just 3.5 percent of the purchase price. Buyers may qualify with a lower credit score than traditional mortgages, at just 580. Buyers with a credit score of 500 may qualify with a 10 percent down payment. Under FHA rules, you can purchase up to four units of property. The caveat is that you must live in one of the units.

VA loans

Veterans can finance four stories at a 0 percent reduction with a VA loan. Interest rates are also lower than with a conventional loan. However, while you can become the owner of a four-story home with a VA loan, you must live in one of the units. A VA loan is only available for primary residences, not investment properties. Fourplex offers the best of both worlds.

Can you live in your Fourplex and still make rental income?

Yes, living on four floors and generating rental income from the other units is a major reason to invest in this type of housing. Live in one unit as the landlord on site, and the tenants pay your mortgage. This arrangement makes great home hack.

Do you have family or friends looking for a home but you don’t want to share your space with them? fourplex allows you to rent units to them without sharing the kitchen, living room, bathroom, or personal privacy. While under the same roof, separate walls and doorways allow for seclusion.

Advice for investors interested in Fourplex

If you are interested in the fourplex as your next investment property, here are some tips to follow to make sure you maximize your cash flow:

• Find a good site: As with any real estate investment, the “location, location, location” mantra prevails. Look for quad complexes in safe neighborhoods with a strong job market, close to shopping, entertainment opportunities, and a good school system.
• Determine how to deal with utilities: Decide how you want to handle utilities for each tenant. For example, a separate water meter for each unit billed to the tenant means they pay exactly what they owe. A separate bill means a separate, often exorbitant, base fee. If you pay the water bill as an owner, there is only one basic fee, and you can divide your water use by four. You can raise the rent if water costs increase dramatically. You will also have tenants who say they don’t use more water, and the other tenants are wrong.
• Screen tenants carefully: Perform thorough background checks for each tenant. While you will certainly do this with people you don’t know, it can be a delicate topic if one or more of your potential tenants is a friend or relative. You may know that there is no criminal history or eviction, but you may not know if this person is paying their bills. A credit check report reveals their credit score, much of which is determined by timely paying bills. You don’t have to worry about whether the tenant will pay their monthly rent.

Is Fourplex right for you?

Is Fourplex a good investment for you? A lot depends on whether you live in one of the units or are an absentee investor. For the latter, having a good property manager is always a necessity.

Think four floors if you are just getting started in real estate investing. Combined with attractive financing options for buyers of four floors, this purchase offers hands-on property management experience. You may find this is right up your alley or you are better suited to a more passive investment. It is an opportunity to learn more about real estate investing and yourself.

Note by BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.