Real estate investing is hardly the new gold rush. Savvy real estate investors know about the fourplex, but do you? Many real estate investors have made their fortunes with rental income property and continue to do so. But they all share one thing- a passion for real estate that only grows stronger with time!
Owning a fourplex offers many benefits that apartments do not to real estate investors, such as affordability and convenience. A multifamily property that can generate a good rental income for the owner.
If you are thinking of buying a fourplex, it is important to do your research first. This article will discuss the basics of this type of property and what you need to know before investing in one.
Let’s understand What exactly it is?
What is a Fourplex?
A fourplex is a multifamily home with 4 legal dwellings. And, they are developed to house four different families in the same building with separate entrances. They are becoming increasingly popular as an investment property choice because they provide several advantages that single-family houses do not. For example, they are ideal for house hacking.
Suppose you want to become a real estate investor. In that case, you must know that the potential for this type of property to generate the same level of rental income as multiple properties, with tax benefits and an ability to offset your mortgage costs, make it attractive.
Property owners have many advantages and responsibilities that come along when you own one – such as property management, building operations, or working directly with tenants.
Multifamily properties can be a great investment but only if it is located in the right area and you have the financial resources to purchase it. They can be a sound investment if the units are bought in an ideal location.
Fourplexes are the largest multi-family dwellings that an investor may get a residential mortgage for. Other properties that qualify for this type of residential financing include duplexes and triplexes as well! Additionally, these properties have the potential to qualify for financing, like an FHA or VA loan.
Note that properties that contain more than four units i.e five units and above are considered commercial property units. They are not eligible for conventional or government-backed financing options such as FHA or VA loans.
Let’s understand the pros and cons of investing in a fourplex.
Many are fans of fourplexes as investment properties, mostly because they provide investors with more than enough income to pay their mortgage.
However, others find faults with fourplexes because it requires you to be committed and buy an extra property just for tenants. No doubt, those that buy a fourplex are also buying a job. Yet for many, “the commitment issue” is par for the course.
Pros of investing in a fourplex
Here’s a summary of some benefits of a fourplex investment.
- Instant cash flow possibilities: They can provide an investor with significant cash flow right away, as opposed to the 12-24 months it typically takes to see a return on investment when buying traditional rental properties.
- Property Taxes: Fourplexes can offer investors several tax breaks that apartments do not. These tax benefits can include deductions for depreciation, interest, and other expenses related to the property.
- If the owner lives in one of the units, multifamily properties have the potential to qualify for lower down payment financing, like an FHA or VA loan.
- Multiple streams of income: Unlike single-family homes, fourplexes can provide investors with up to 4 sources of income. This is because 3-4 units in the property typically get rented out.
- Less risky when vacant: They are typically less risky when vacant than traditional rental properties. This is because fourplexes can still generate income even if one or two units are vacant.
- Many landlords are comfortable dealing with the day-to-day tenant requests and conduct repairs themselves. But if you’re not up for it, a foutplex may not be right for you.
Cons of investing in a fourplex
While there are many benefits to owning a fourplex, there are also some potential drawbacks that investors should be aware of.
- Extra responsibilities: When investors own a fourplex, they manage all aspects of the property themselves. This includes building operations, repairs, and tenant relations.
- More expensive: fourplexes are typically more expensive to purchase than traditional single-family homes and may require a higher $ amount than a single-family home.
- Limited tenant pool: fourplexes usually appeal to a narrower range of tenants than traditional rental properties. This can make it more difficult to find quality tenants.
- Inconsistent cash flow: Investors must keep apartments occupied to maintain a consistent cash flow.
How to Choose the Most Suitable Fourplex Investment Option
Consider the following factors while selecting the best fourplex investment opportunity for you:
- Location: When looking for one to invest in, it is important to consider the location. The closer the fourplex is to grocery stores, schools, and hospitals, the more likely it is that tenants will want to rent from you.
- Financing approval: It is also important to ensure you are eligible for financing before investing in a fourplex. Ask yourself, how much down payment will you need? And is your credit score high enough to get a conventional mortgage?
- Make a plan: To determine whether or not a fourplex is a good investment, investors need to consider monthly cash flow projections, mortgage payment, and other expenses. Doing so will get the estimated net operating income. And if the number is positive, you could be earning positive cash flow!
- Look For Listings: Now that you know what to look for, it’s time to start looking for fourplexes in your area. Research the local housing market before investing in a multifamily property to ensure that you get a good investment return.
Like any investment, fourplexes have their own advantages and disadvantages. Those who are serious about starting should have the financing options sorted prior to making an offer. For example, having enough closing costs before buying a fourplex is essential.
5 Tips To Help You Get The Best Of Investment In A Fourplex
Fourplexes are a great way to invest in real estate because the other renters typically pay the entire mortgage. Here’s some tips to become an even more successful fourplex owner:
- Buy a fourplex in a location with a stable or growing economy. Doing so will help to ensure that your investment doesn’t end up in a ghost town.
- Know the 1% rule: At least 1% of the property’s purchase price needs to be earned through rental income. For example, if the fourplex you are interested in purchasing costs $200,000, you will want to ensure that at least $2000 per month is being earned in rent. This will help ensure that you’ll be able to cover all your costs.
- Have a solid exit strategy: Fourplex investments can be a great way to make money. But, like any investment, it’s important to have a solid exit strategy. Make sure you have a plan in place for what you will do if you want to sell the fourplex.
- Be sure to consult with Realtors before investing: As always, it’s important to consult with professionals before making any major decisions. Local professionals can help investors understand the risks and rewards associated with properties in your area.
- Real estate websites are a great way to find out more information on real estate investing. They can help you understand real estate investing metrics better.
A duplex is a building with two legal units, or apartments. A triplex building with three legal units, and a fourplex, quadplex or quadruplex are all legal four-unit buildings. In any case, they can be configured as one on top of the other, or side by side, or a combination of both. Fourplex properties are one of the great investments if the owner can streamline its’ management.
Fourplexes are multi-family homes. They are dwellings with four legal units under one roof. Typically, they are rented out to separate families, but sometimes the owner lives in one unit and rents out the other units.
If you are looking for a more stable investment option that will provide passive income, a fourplex may be the right choice. However, it’s important to remember some responsibilities come along when you own one. For example, there will be managing building operations or dealing directly with tenants in person. Indeed, it could sometimes feel like a full-time job. So, be sure to consider all of the pros and cons before making a decision.