Financing a Fourplex Real Estate Investment Property

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I am asked for advice all the time about financing, and particularly financing for multi-unit investment properties. As I give advice, I outline specific goals of the individual investor and the intent of the property. The multi-unit properties I would like to address are fourplexes, triplexes, and duplexes. These multi-unit properties can be financed as residential properties under the same guidelines as single family homes. Many of these units fall within the Freddie Mac and Fannie Mae conforming guidelines. This translates to more options, lower costs, and better interest rates.

With multi-unit investment properties your goal should be very clear…..CASH FLOW. Why is cash flow so important? Properties that can cash flow can survive all market cycles. Even in a down market, your strategies can shift to a “hold rather than sell” property, and because you can cash flow you can wait until the market turns. In a real estate market that is peaking you maybe able to leverage equity to buy more units, but you must analyze your numbers to make sure you can still cash flow. This allows you to dictate when you should sell rather that the market dictating when you must sell.

Financing a multi-unit or fourplex can be very easy. Fully document your income, put 30% down, have perfect credit, and be the proud owner of your income generating property. What if you do not have 30% to put down? What if you are self employed and proving all of your income is a challenge? Let’s take a look at financing options that are outside the box:

Down Payment

There is a long list of other down payment alternatives (i.e. equity in other properties, 1031 exchanges, self directed IRA’s, seller carry and gifted equity)

Let’s focus on self directed IRAs. There are many individuals that have spent a better part of their life working for employers that have established either an IRA or 401k. Most individuals are not aware that these accounts can be liquidated via a custodian account and used in a down payment on your real estate purchase. This is ideal for the first time investor that does not have a substantial amount of money in their checking and savings account, but have more than enough money thanks to a fully vested and employer matched contribution 401k account.

Self Employment

For self employed individuals, stated income loans are still available with as little as 20% down. Keep in mind that your credit score needs to be 720 or above. Your loan is subject to more scrutiny than a fully documented wage earning employee, but you still have options. Just make sure the property cash flows.

2008 Highlights for Conforming Four Plex Loans:

Maximum loan amount -$801,950

LTV – 75% to 80% (depending on credit score)

Down Payment – Self Directed IRAs, 1031 Exchanges and Gifted Funds

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  1. Since the average 4-unit property costs over $400K, where are beginning investors getting the 30% down payment? That’s $120,000 not including closing costs.

    There are so many folks who’d love to invest, but simply don’t have that sort of money. Even a $150K rental home at 30% down requires over $50,000 in cash including closing costs.

    Where does this money come from, if not their retirement funds?

    Thanks — your posts are much appreciated.

  2. Multi-family units are the best way to invest particularly right now. Prices are low (which is when you want to be buying) and a good investment can generate tons of cash flow. I love the self-directed IRA investing method and teach this nationwide every month. Although it is true that 30% down min. is required with SDI investments due to non-recourse loan requirements, there are several other creative startegies to use to avoid coming up with large down payments as mentioned in the post. I have 4-plex units available (NEW) in TX which cash flow and I can show investors how to get in with 10% down and sometimes less! I also have great duplex units (new) that cash flow $400 per month with only a $15k investment and others with 100% financing.
    Keep up with the great pots!

  3. Sometimes investors stumble when making investment decisions. Every investment option requires information, discernment, and wisdom. Current events demand the keen wit that avoids a misstep, yet acts boldly when the circumstance and the opportunity present themselves. Real estate, when resources permit, makes sense.

  4. investment property on

    it gives a great information and wisdom about the multi unit investment properties and the way the goal is reached in this task.and also you can gather the information about down payment and self-employment.

  5. For those of you who are interested in getting started below $400,000 (which is a ridiculous average–lovely, yes, but ridiculous nonetheless), I would suggest one of two options: 1) Low-income areas (trade-offs occur, of course), 2) Talk to someone who will offer seller financing. I am currently selling a 4-unit in Amherst, NY (an upscale suburb of Buffalo, NY) for much less than $400,000, and I only require 10% down and I finance the rest. It is easy, but have a good lawyer who will draw up the papers for you. Good luck investing.

  6. maybe it would be a great idea to invest in foreclosed fixer uppers this time. I’m sure you can get great deals on this….

    THere is a great game called Flip That House Real Estate Cashflow Game. While it’s about flipping homes, i’m sure it can also teach pple about flipping duplexes or foreplexes…

    fact of the matter is there are probably great deals out there if you wanna look.

  7. this is an interesting topic, i wonder if or how things have changed w/the recent real estate down turn. Is now a great time to invest in Forplex Real Estate?

    I’d wanna wait to see just how things turn out

  8. I think most of us can agree that residential multiunits are hot right now. ESPECIALLY because of the market turndown. I like them because of cash flow and as a hedge against vacancy losses. If I have a single family home and someone moves I have 100% vacancy. If I have a 4-unit and someone moves out I have 25% vacancy.

    The issue is always the downpayment for investors. We are taught to use LEVERAGE in investing. And who wants to tie up 30% of their own cash in one property?

    We teach our clients to buy distressed multiunits using a private rehab loan. If you get a loan for 70% of the ARV, then your deal should be good enough to roll in 100% of the purchase price, 100% of the repairs and 100% of the closing costs. Once the work is complete, do a rate and term refi into permanent financing. Voila – a 100% deal. And yes, still available and happening in 2008!

  9. Susan,

    That is exactly what I used to teach investors to do when I was doing loans. Find a distressed multi-unit and get a hard money loan….fix it up and refi into a normal loan 6 months down the road with a LTV they can afford or one where they will need 0 additional down payment. Multi-units in Cape Cod are going like hot cakes right now.

  10. Mr. Schuricht
    Fourplex sounds great but what advise could you give to one that been through a divorce,left with “BIG” debt problem, bad credit and simple no money to invest in real estate at this moment?
    What programs are available?

  11. The premise of the above article is a good one, triplexes and duplexes are my main investment vehicle.
    But there is one glaring error. I have an 829 credit score, 30% or more to put down (I could pay all cash), my track record of management is impeccable (and profitable).

    The error? I have not found a lender who will finance any investment property with conventional terms, i.e. 15 year, fixed rated of interest. Currently I am paying 7 3/4% until 2013 and then who knows?

    If I could get a fixed rate, for 15 years I would retire from my trade (contracting) and go on a buying binge.

  12. Troy……I do agree with Dennis, eventhough the 4plex loans falls under housing loan it has to be owner occupied to avail the good interest rates. For investment properties the loan rates are different and once it’s under LLC you know the rest…….do you have any recommendations on this?

  13. The guidelines have change somewhat since 2008, but with real estate cycles , they may return 10 or 15 yrs later once enough lawmakers are swayed and / or forget about the collapse of subpar underwriting and approvals. Some lenders want you to qualify without the rental income which is ridiculous since that is the objective of buying the “income property”.

  14. you can finance in some areas for 5% down at the current rate (4.625%) if you want. Of course you can make money from month 1 if you just buy it outright, but its a good entry into investing and usually gives you a free place to live if you live in one unit.

  15. Kerry Crandell

    I’m really interested in finding and buying a duplex-fourplex in the near future. I live in Denver, but really open to buying in other places (in my opinion- our market feels rather frothy right now) I have separate buckets of money (meaning self directed IRA, large HELOC, and cash savings) I am really hoping to use my $25-40K IRA money for this type of investment…but not sure where to start and if it is enough. ?? Is there someone on this wonderful resource that knows how to gain more information on how to accomplish buying an income property with different cash reserves?

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