What Is a Fourplex?
Advantages of a Fourplex
Fourplexes offer some unique benefits to real estate investors.
Financing Options: Fourplexes are the largest multi-unit property an investor can finance using a residential loan (other multi-unit properties that qualify for residential financing include a duplex, which has two units, and a triplex, which has three). Because of these residential financing options, fourplexes also have the potential to qualify for lower down payment financing, like an FHA loan, which only requires 3.5% down if the owner intends to live in one of the units.
Income Generation: A cash-flowing fourplex can generate the same income as four separate investment properties. Additionally, the costs of operation like property insurance, maintenance, and property taxes, for example, are generally lower on a fourplex compared to four individual single-family homes.
Streamlined Management: Another advantage of owning a fourplex is that an owner can streamline their obligations, expenses, and responsibilities. Things like snow removal, pest control, landscaping, lawn care, and trash removal require fewer points of contact from the owner, which makes these tasks easier to manage and cumulatively less expensive when all tenants share the same building.
Less Vacancy Burden: A duplex owner loses 50% of their income when a tenant moves out. A fourplex investor, on the other hand, only loses 25% in the same scenario. In this way, the additional units of a fourplex help spread out the financial impact of a sudden or unexpected vacancy.
Tax Benefits: A real estate investor can write off expenses related to any/all units that are used for rental purposes. Landlords who live in one unit and rent out the other three units can write off expenses only for the units they are renting out. Typical write-offs include depreciation, management expenses, maintenance & repairs, and any utilities billed to the owner.
Disadvantages of a Fourplex
Though there are many advantages to owning a fourplex, there are also some disadvantages to consider.
Potentially Higher Tenant Turnover: One of the main disadvantages of a fourplex is that in certain markets, it may experience higher tenant turnover than a single-family home.
Tenants May Care Less About The Property: In certain markets, renters in single-family homes tend to take better care of the property and treat it more like owners. The assumption is that tenants renting out a single-family home are often more invested in their neighborhood and stay longer whereas multi-unit tenants may be more transient in nature and therefore less conscientious about treating their unit with care.
Regulations Are Stricter: Many landlords are already dealing with multiple regulations regarding property rental, and multifamily homes add another layer of complexity to an already complex situation. When renting out a multifamily property, like a fourplex, landlords need to research zoning and other relevant codes beforehand to avoid fines or worse.
How to Choose a Fourplex
1. Assess the Location: For real estate investors, location is arguably the most important consideration. Look for areas trending upward economically and demographically. Proximity to public transportation, shopping, and services is also a plus for the type of tenants most likely to rent a fourplex. A good location means the property is more likely to increase in value and attract more responsible tenants.
2. Financing Approval: The next step is to consider financing options. If an investor plans to live in the fourplex, they may be able to get FHA or VA financing. Otherwise, fourplexes can be financed with a number of options, including a conventional mortgage even seller financing, if the seller is willing to extend this as a financing alternative.
3. Run the Numbers: The next step is to calculate certain figures that will aid in determining whether a property is a good investment or not.
Some investors strive for certain cash-on-cash return, while others may only want to buy at a certain cap rate, while others still, may prefer a number of other figures like the internal rate of return, the 2% Rule, and so on.
Each one of these methods of assessments has pros and cons but each will aid an investor in determining whether or not a property can produce the desired return.
Many investors will take special care to verify their assumptions by comparing rents for similar properties in the area. Real estate websites like Zillow and Trulia often have rental information, as do websites such as Rentometer and Rent.com.
A fourplex (also known as a quadplex) is a multifamily home, similar to a duplex and a triplex. As evident in the name, a fourplex is a residential building with four separate units under one roof. The configuration, like the duplex and triplex, may be side-by-side, stacked, or other arrangements depending on how the property was built.
Fourplex properties represent the biggest multifamily cash flow generator if the landlord decides to rent out all four units, because residential loans can cover up to a fourplex and residential loans have much favorable terms than a commercial loan. A fourplex can even be financed with an FHA loan with a down payment of 3.5% if the owner lives in one unit for up to a year. However, a fourplex presents more disadvantages as well, as placing a multifamily property with four vacancies may need the owner to research the optimal location as they would properties with even more units, such as an apartment.
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