• A fourplex (also known as a quadplex) is a multifamily home, similar to a duplex and a triplex, with four separate units under one roof.
• The configuration of a fourplex 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 more 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 placing a multifamily property with four vacancies may require the owner to research the optimal location as they would properties with even more units, such as an apartment.

Fourplexes can be great investments—or they can be nightmares. Like any real estate investment, it simply depends on the individual property and deal.

These properties tend to make the most sense for long-term rental property investors looking for cash flow. In markets with plenty of tourism, they can also work well as short-term vacation rentals. Investors should run the numbers both ways and only use conservative vacancy rates in both cases.

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[1].

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[2]. 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.

Fourplexes also come with some efficiencies, such as maintaining just one roof and foundation instead of four separate ones. Visiting all four units in one easy trip, such as for semi-annual inspections, rather than driving all over town, can reduce an investor’s ongoing expenses and improve return on investment (ROI).

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 or all units 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[3]. Typical write-offs include depreciation, management expenses, maintenance and repairs, and any utilities billed to the owner.

RELATED: House Hacking: The Official Guide On How To Live (Almost) Mortgage Free

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. By contrast, 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[4]. When renting out a multifamily property, like a fourplex, landlords need to research zoning and other relevant codes beforehand to avoid fines or worse.

Riskier Investments: They can be risky as flips, given the niche market for them. It could take a fourplex owner a few months to find the right buyer for one, depending on the local market. It may be harder to liquidate a fourplex even when the owner is ready to sell, no matter how long they plan to own it. Luckily, platforms like Roofstock can offset this disadvantage somewhat, as it can make it easier to sell rental properties to investors all over the world and open up a buyers’ pool considerably.

The good news is that interested buyers can find fourplexes for sale in most of the same places where there are single-family homes and duplexes for sale. This is also the bad news, as so can every other real estate investor.

Here are some alternatives to finding good deals on fourplexes.

Scour the Multiple Listing Service (MLS)

The MLS contains many four-unit properties, alongside cookie-cutter houses with white picket fences and dog houses stenciled with “Fido.”

Investors may find a better deal on the MLS by either being the first person to hop on a deal when it’s listed or the last. In the former strategy (first person in), instant alerts when any four-unit property comes onto the market are helpful. Alerts can help an investor run a quick and dirty cash flow analysis, based on equally simple market rent research. If the property looks promising, the investor can schedule a showing immediately and make an offer on the same day.

In the latter strategy (last person in), it is advisable to look for fourplexes sitting on the market for four, five, or six months and haven’t moved. These sellers may just be stubborn and are refusing to take a reasonable offer, or they might be frustrated that the property has sat so long and bordering on desperate. For the latter, it can allow the investor to make a lower offer than they could get away with otherwise.

Find Pre-Foreclosures

An ultimately motivated seller is a person going through foreclosure.

Once upon a time, investors needed to pull foreclosure filings from the local courthouse. Today, it can simply be done by paying a small subscription fee to Foreclosure.com or Propstream for instant access to all pre-foreclosure filings in any target market.

With this data, an investor can simply set up a direct mail campaign and market to any owner with equity. A good strategy is to offer to let them stay in the home and buy it back for a small margin after a year, as most homeowners in foreclosure do not want to move or lose their home.

Drive for Dollars

Driving for dollars involves driving around a market and looking for abandoned or dilapidated homes. These owners either do not have the interest or the money to maintain their properties, and therefore make for motivated sellers.

Propstream offers a built-in direct mail service for sending postcards. The Deal Machine app can also help while physically driving through the city to find run-down fourplexes. Still, given how uncommon and expensive fourplexes are, this method is less likely to find neglected four-unit buildings than typical single-family homes.

Scour Public Classified Sites

For every buyer, there is a seller looking to unload something. Classified websites like Craigslist and Facebook Marketplace allow fourplex owners to list their properties. The more markets an investor checks this way, the more likely they will find a decent deal.

1. Assess the Location: For real estate investors, location is arguably the most important consideration[5]. 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 or 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[6], and so on.

Each one of these methods of assessment 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.

There are not nearly as many fourplexes as there are single-family homes (or even duplexes or triplexes). This makes finding fourplex deals harder to find and even harder to score good deals for.

Here are other ways finding an excellent fourplex deal is difficult.

Financing Quirks

Buildings with up to four units legally count as residential. Investors can technically buy them with conforming mortgages or government-backed loans like FHA and VA loans, but this does not necessarily mean it is always easy or the same rules apply.

Some conventional loan programs require a higher down payment for multifamily properties than single-family homes. For example, Fannie Mae’s popular HomeReady program, famous for its 3% down payment, requires a mammoth 25% down payment instead for four-unit properties. Occasionally, some hard money lenders offer higher loan-to-value ratios.

Because they cost more than average local single-family homes, investors also need a proportionately higher income to qualify for them. Fortunately, investors can use future rental income from the neighboring units to qualify if they plan on moving in themselves.

Meters and Utilities

Most properties zoned for four units have four discrete water and utility meters, allowing landlords to make tenants responsible for their own utilities. Otherwise, landlords must think of other ways to handle utilities.

One is to include utilities with the rent, but tenants tend not to value what they do not have to pay for. In other words, most tenants will tend to waste energy and water in this setup.

Alternatively, landlords can split the utility bills four ways and charge the tenants evenly. However, this may open up the landlord to complaints from the tenants, since their usage of the utilities may vary but they pay the same amount.

Jump in Property Management Labor

A fourplex is technically only one addition to a real estate investment portfolio, but in reality, it is adding four doors, ergo four tenants, which multiplies property management headaches.

In this case, it is a prudent course of action to research local property managers. This is applicable even if the landlord can self-manage, in case they do not want to be disturbed by 3 a.m. phone calls.

1. Wichter, Z. (2020.) How to finance a duplex or multifamily home. Bankrate. Retrieved from https://www.bankrate.com/finance/mortgages/how-to-finance-a-duplex-or-multi-unit-home.aspx
2. Ugazu, Y. (2019.) What Is a Fourplex and Should You Invest in One? Mashvisor. Retrieved from https://www.mashvisor.com/blog/fourplex-invest/
3. Poretsky, S. (2018.) The Tax Benefits of a Duplex With Owner-Occupancy. SFGate. Retrieved from https://homeguides.sfgate.com/tax-benefits-duplex-owneroccupancy-38884.html
4. U.S. Department of Housing and Urban Development. (n.d.) OCCUPANCY REQUIREMENTS OF SUBSIDIZED MULTIFAMILY HOUSING PROGRAMS (4350.3). Retrieved from https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh/4350.3
5. Fettke, K. (n.d.) 18 Best Places to Buy Rental Property in 2021 for Cash Flow & Appreciation. Real Wealth Network. Retrieved from https://www.realwealthnetwork.com/learn/best-places-to-buy-rental-property/
6. 1-2-3 Flip. (n.d.) The 2% Rule. Retrieved from http://www.123flip.com/education/the-2-rule/