My Advice? Buy a FourPlex
Author: Troy Schuricht • URL: http://www.communityfirstfinancial.comMay 22nd, 2008 •
Community First Financial talks to many of investors every day and there are some thoughts I would like to share with you on our experiences with investors, particularly first time investors.
One of the top questions I hear from investors is, What would you do?
If I could start my investing life all over again I would buy a FOUR PLEX as my first home. And when I say first home I mean first home. Most people buy their single family house, live in it as their primary house, then look to buy their first investment property. For those that are flexible and motivated I suggest you buy a 4 plex as your first primary home and investment property.
Here is why owner occupied 4 plex makes sense:
- Qualifying for a first time home buyers loan on a primary residence easier.
- You need less money down.
- Rental income helps qualify.
- You now have a primary home and an investment in one transaction.
- Potential cash-flow or you could pay for your primary unit with the other three units cash-flow.
- When you decide to move you have a 4th unit that becomes a rental.
- On site property manager.
Highlights of the loans available on a 4 plex (primary residence):
- Up to 80% financing
- Rates start at 5.875% on a 30 year fixed
- Loan amounts to $801,950
- Seller can contribute 6% to closig costs
- Credit scores down to 575
- 2 month asset reserve minimum requirement
This is also a great idea for individuals that have kids that are in need of an idea on how to get started in real estate.
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Tags: financing investment properties, fourplex, investment loans, investment property, landlord, real estate, real estate investing, state income loans
Joshua Dorkin
Charles Feldman
Ted Karsch.
Troy Schuricht
Richard Warren
Jim Watkins
Troy - I think this is really good advice, however, I might suggest that cautious newbies start with a duplex instead. Managing less people and dealing with less maintenance and other issues is probably best for someone who is just getting started. While I can’t speak for the lending side of things, from a management standpoint, a duplex is much easier to handle.
This is certainly an interesting article but I was wondering what happens with a smaller unit. I am thinking about a duplex because like the first commentor said, that would be easier to manage, especially if it is your first home and you have a full time job.
Good advice for sure. I’d add that FHA financing should be on the investor’s A-List. It has the fixed rate, and saves upfront costs, allowing for larger cash reserves. With three renters, it should still be cheaper than owning a house by far.
The new FHA loan ceilings are really helping 2-4 unit owner-occupied borrowers big time.
Troy, nice post to get people thinking out of the single family box a bit. I agree also with the BawldGuy, the new FHA loan ceilings are a great option right now. One of my kids is soon closing a four plex deal on a new building a very distressed builder is dumping in a nearby market, she has 2 units preleased and is showing the other available unit to 3 parties tomorrow.
I like the idea of fourplexes — Josh may be right about someone just starting out, but if they have some wordly experience and have gained the knowledge to know what they are getting in to, it could make sense.
If you are living in one, you are not tight on cash, and the rental market is strong, the long run should be profitable.
I would get some serious advice from pros, though, to cover all the downsides.
duplex vrs fourplex. not really much more work to manage a 4 plex(which is only 3 if you live in one) than a duplex. 1 tennant or 3 , al in the same location..If the cash flow is good then it is easier to lose 33% or rent instead of 100% if you have a vacancy.
With proper preparation, education and mentoring a first time investor should be able to handle a fourplex. Remember the key to investing in real estate is your team, make sure if you buy a four plex you have resources of individuals that actually own fourplex’s too.
Nice opinion…I don’t even think about buying 4 plex the whole my life before…But, I think this crisis has changed everything, including my way of thinking.
Please, who can explain me, what is difference betveen buying 4-plex in contrast to smultaneous buying any package of 4 separate condo/homes as regards to favourable mortgage conditions?
From previous posts I understand (probably, I don`t right?), that lender refers to 4-plex as to one unit, as first RESIDENTIAL unit for the premier borrower, and so he is ready to give better conditions vs 4 separate units, because a lender consider this package as COMMERCIAL property.
But just house w/more than 3 unite, according to law, is estimated as COMMERCIAL?
NB. Sorry for my elementary question: I`m a tyro in RE.
Good advice but I would add a couple caveats. Make sure the price per unit is not too far out of line with apartments and don’t forget to do the math to make sure the place will cash flow.
Because 2,3 and 4 unit buildings qualify as residential as opposed to commercial propertied, hence commanding better financing prices were bid way up in parts of the country during the bubble. If you over pay on a per unit basis you will limit your exit strategies.