If you’re looking to try it out as a residential real estate investor, Fourplex might be a good place to start. It’s also a sound investment for first-time homebuyers, as he of the Fourplex units can live in one and rent the others, and the tenant pays the mortgage. If you want to use it strictly as an investment property, that’s fine, but it can limit your attractive financing options.
What is Fourplex?
A Fourplex is an apartment complex with four separate units under one roof. Also known as Quaplex. Each unit has its own entrance. Some Fourplexes include a common building entrance with individual interior entrances for each unit. Arrange the units side by side or in a stack.
From the road, a shared foyer quadplex may resemble a large single-family home.
Fourplex Investment Professional
There are many reasons to invest in Fourplex. Here are some of the best ones.
Additional cash flow potential
Fourplexes are better than 2-3 unit properties when cash flow is important. Each unit represents a stream of income.
favorable financing
Quimplex is not a term most real estate investors use. That’s because once an apartment complex exceeds his four units, it’s considered commercial real estate, not residential. This makes financing a 4-family home more profitable, as a mortgage is available instead of the commercial loan required for 5 or more units.
One mortgage for multiple doors
If you buy multiple single-family homes as an investment, you will likely pay a separate mortgage for each property. Living in a four-family home, he only makes one mortgage payment and one property tax payment. Paperwork and record keeping become easier.
economies of scale
With four units, economies of scale cost less. So are insurance, lawn care, and snow removal.
tax incentives
Fourplex pays less property tax than buying four separate rental properties. Other tax benefits may also be available, such as property depreciation and investment tax credits.
Loss of tenants has little impact
If the tenant moves out, the loss will occur if the room remains vacant. However, if you are a two-family home owner and rent one room, you will lose all rental income when the tenant moves out. If one tenant moves out of the Fourplex, rent will continue to come in for 2-3 units depending on whether they are onsite owners or not.
Cons of Fourplex Investments
Despite all the advantages, there are still some reasons why Fourplex may not be suitable for all new investors. Before investing in fourplex, ask yourself if you can address the following:
management responsibility
For an investor, managing another unit or two on their own is another matter. It takes a lot more time and effort to properly manage Fourplex. If he does not live in any unit, he will deal with at least three, possibly four, separate tenants. This manageability is one reason why the demand for fourplexes is much lower than doubles and triples. Of course, managing a Fourplex is still easier than managing four separate single-family properties. Many investors have a property management company oversee his four-story building.
difficult to sell
Demand for Fourplexes is low compared to Duplex properties, which often makes it difficult for Fourplex owners to sell in a pinch.
Decreased privacy
If you are using either unit as a residence, expect your tenants to knock on your door when there is a problem. If you are an onsite fourplex landlord, don’t expect much privacy. On the plus side, if you need repairs or have an emergency, you don’t have to go to the rental facility and can be right there. Less privacy, but more convenience.
Tenant turnover rate is high
Fourplexes tend to have higher tenant turnover than single-family homes. For tenants, Fourplex buildings tend to be their first living spaces. Many Fourplex tenants will have to wait until the single-family home market becomes more attractive, or have enough money saved up to move out.
How to find Fourplex
Work with your local real estate agent or use MLS to find available Fourplexes. BiggerPockets Agent Finder Introducing an investor-friendly agent who specializes in multifamily transactions.
If the housing market in your target area does not have adequate inventory of Fourplex living units, contact the owners of Fourplex living units in your area and ask if they are considering selling. Visit her website at the City Tax Assessor or County Recorder to find the owner. Information from the assessor includes current property taxes.
Funding for Fourplex
Fourplex has several advantages when it comes to fundraising. Fourplex does not meet the 5-unit requirement for commercial loans, so you can get a conventional mortgage with a 30-year fixed rate mortgage for this investment.
Regardless of the current interest rate environment, mortgages have lower interest rates than commercial loans.
FHA loan
Financing is even more favorable with Federal Housing Administration (FHA) loans. The minimum down payment for an FHA loan is just 3.5% of the purchase price. Buyers can qualify with a lower credit score (only 580) than traditional mortgages. Buyers with a credit score of 500 can qualify with a 10 percent down payment. FHA rules allow the purchase of up to 4 units of real estate. The caveat is that you must reside in one of the units.
VA loan
Veterans can fund Fourplex with a 0% down payment with a VA Loan. Interest rates are also lower than traditional loans. However, you can become a Fourplex owner through a VA loan, but you must reside in one of the units. VA loans are only available for primary residences and are not available for investment properties. Fourplex offers the best of both worlds.
Can I earn rental income while living in Fourplex?
Yes, living in a Fourplex and getting rental income from other units is the main reason to invest in this type of housing. As a site owner he lives in one unit and the tenant pays the mortgage. This arrangement makes a great house hack.
Have family or friends looking for a home but don’t want to share a living space? With Fourplex you can rent a unit without sharing your kitchen, living room, bathroom and personal privacy . Although they are under the same roof, the walls and entrances are separate, keeping the space separate.
Tips for investors interested in Fourplex
If you’re interested in Fourplex as your next investment property, here are some tips to follow to maximize your cash flow.
- Find a suitable location: As with any real estate investment, the ‘place, place, place’ mantra strongly influences it. Look for a quadplex in a safe neighborhood with a strong job market, close to shopping, recreational opportunities, and a strong school system.
- Decide how to handle utilities. Decide how to handle utilities for each tenant. For example, having tenants billed for separate water meters for each unit means that tenants pay exactly what they owe. Separate billing means a separate, often expensive, base charge. If you pay your water bill as a landlord, you only pay a one-time base fee and you can divide your water usage by 4. If your water bill rises significantly, you can raise your rent. Also, some tenants will argue that other tenants are to blame for not using more water.
- Carefully screen tenants. Perform careful background checks on all tenants. I certainly would with someone I don’t know, but it can be a sensitive issue if one or more of the prospective girlfriends is a friend or relative. You may know that the person has no criminal record or eviction record, but you may not know if the person is paying the fee. A credit report reveals their credit score, much of which is determined by timely bill payments. You don’t have to worry about whether your tenant will pay your monthly rent.
Is Fourplex Right for You?
Is fourplex a good investment for you? It depends a lot on whether you live in one of the units or are an absentee investor. For the latter, you most likely need a good property manager.
If you’re just getting started in real estate investing, consider Fourplex. In addition to attractive financing options for Fourplex buyers, such purchases provide hands-on experience in property management. You might think that this is what you have in front of you, or that a more passive investment would be a better fit. An opportunity to learn more about real estate investing and yourself.
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Note by BiggerPockets: These are opinions written by the authors and do not necessarily represent the opinions of BiggerPockets.