What is a Triplex?
While a triplex consists of three individual dwelling units combined into one building, the individual units will typically share one or two common walls. Each unit of a triplex is self-sufficient, meaning each dwelling space has its own respective kitchen, bathroom(s), living room, a separate door to the outside, and its own address or unit number.
Some triplexes are constructed as a triplex, and others might have originally been built as a large, single-family home that was later divided into three separate dwellings.
A triplex is sold as one building, and the owner usually rents out all the units or lives in one unit and rents the other two (see house hacking). In some cases, a triplex owner can live in one unit and have family members live in the other units. Typically, however, a triplex is purchased for investment purposes: to earn rent money.
Advantages and Disadvantages of Owning a Triplex
There are a few key advantages and disadvantages of owning a triplex, especially for landlords who intend to live in one of the three units.
- The landlord is close by when repairs are required.
- The landlord has certain tax advantages, like writing off some maintenance costs, repairs, and depreciation for the rental units.
- If the landlord pays utilities, he or she can also write off the utility bills for the rental units.
- The landlord can move out and then have three income-producing properties.
- A triplex is typically more expensive than a single-family home or a duplex.
- It can be more difficult to sell a triplex since there are likely tenants involved who might have different lease end dates.
- It can be difficult for landlords to live so close to tenants. If there are any problems, the landlord is still a neighbor of the tenants.
Triplexes are also notably less common than duplexes and fourplexes, so if a buyer is looking specifically for a triplex, they may have a more difficult time finding them in many markets.
Investors just starting out or who are familiar with only the more prevalent single-family home might be interested in investing in a triplex (or a duplex or a quad). Any building with two, three, or four units is considered a multi-family home.
Residential Loans vs. Commercial Property Loans
A building with more than four units is considered by most lenders to be commercial real estate and thus, requiring a commercial real estate loan – which has a very different set of loan terms than a residential loan.
A triplex, because it has fewer than five units (as does a duplex and a fourplex) qualifies for a residential mortgage loan. Buildings with five or more units will almost always be financed with a commercial loan.
Typically, a commercial loan will have a shorter amortization and the loan is based more heavily on the property’s net operating income, while a residential loan is based more heavily on the creditworthiness of the applicant.
A real estate investor buying a multi-family property can get either a residential or a commercial loan. It can be advantageous for a real estate investor to get a residential loan versus a commercial loan whenever possible. A residential loan usually has a lower interest rate and a residential loan typically has a longer loan term than a commercial loan. Even if an investor isn’t interested in a long-term loan, planning to pay off a residential loan early, they can still finance the deal with a 30-year loan and pay it off whenever they like. This offers more flexibility.