Why Buy a FourPlex?

by | BiggerPockets.com

fourplexNew investors have a wide variety of options available to them when it comes to what kind of property they are going to focus on. In fact, 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 FOURPLEX 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.

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Here is why an owner occupied fourplex makes sense:

  1. Qualifying for a first time home buyers loan on a primary residence easier.
  2. You need less money down.
  3. Rental income helps qualify.
  4. You now have a primary home and an investment in one transaction.
  5. Potential cash-flow or you could pay for your primary unit with the other three units cash-flow.
  6. When you decide to move you have a 4th unit that becomes a rental.
  7. On site property manager.

Highlights of the loans available on a fourplex (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.

Photo: Matthew Rutledge

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  1. 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.

  2. 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.

  3. 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.

  4. Mark McGlothlin on

    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.

  5. 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.

    • Vera Kyrejko on

      I just lost my duplex due to mold. I would never start out with a duplex only. When it was empty I lost much money. With a 4 plex the chances of all 3 being empty are rare. At least I would have had some income I had 4 sets of tenants in 10 years. 2 of those did so much damage that it ate up my emergency fund. By the time I evicted the one tenant, they caused over 3K $ worth of damage. In OR tenants have far more rights than landlords. If I had to do it all over again I would have bought at least a 4 plex to have some passive income coming in and keeping my emergency fund flush. I went into a short sale which took just under 2 years to close on. My credit is now in the toilet and I was fortunate that I could find an apt to rent due to poor credit rating. Managing people is one thing, knowing how to screen people is another and knowing the landlord laws is another. I am now looking for a multi plex with option of rent to own. I figure with my lousy credit rating I should get something:-) Thanks for letting me vent….Vera

  6. 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.

  7. 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.

  8. 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.

    • I have both: 4-plex and 4 individual properties I am own. 4-plex is new to me but I can point out some pluses. 1. One location. Easy to control and manage. 2. Maintaince side – for example roof replacement. Need to be done only once for all 4 appts instead of 4 different houses/trailers. 4. Taxes. Combination on 4 different properties is a huge expense. 5. Insurance (same thing as taxes). However I enjoy owning both…. Here is a really good advice. Buy a land with trailer on it. Some places you can pay $22,000 to 30,000 for a nice trailer with land and rent it anywhere from $450 to $515 a month. Great return on your investment. However most likle you have to come up with cash (most banks will not loan you money to buy those properties)

  9. 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.

  10. another thing is the ones i am looking at are all rented out and have loyal renters and they are all 2bed/2bath and i am going to be doing an fha loan with a 3.5% down and 8000 tax credit and 4000 rebate from my bank to is it a good idea or will it be a headach.

  11. We are a duplex and fourplex builder in san antonio, Tx. We have beautiful new units available and ready to sell!!! great investment property opportunity and very flexible on financing. Please contact me if you would like to receive additional information. Thank you

    • Brandon Turner

      Hey Tom, I don’t think it’s a terrible idea – if you can handle the stress that comes along with it. I like to advise, however, that if you are even a little “non confrontational” that you don’t let your tenants know that you are the owner. Instead – just be the “manager” that lives on site and takes orders from someone higher up. This way, everything bad can be passed on to the mysterious and unknown “owner” and you can be the good guy. Works like a charm. 🙂 Be sure to check around the BiggerPockets Forums for more advice on this stuff!

  12. Since this article was written in 2008, how does today’s lending parameters apply to attempting to secure a loan for an investment property? What is the minimum down payment like on these properties today? Is 20% the minimum down payment? Is there any flexibility for the down payment? Is FHA still the place to go for a loan? What is the ideal cap rate on a property? As high as possible? What are the kinds of loans out there available for those with low credit trying to break into the market?

    • Brandon Turner

      Hey Bentley,

      Yeah, the market has probably changed some, but I’d say 20% is still the norm for an investment property and if you are going to be an owner occupant, then FHA is the way to get 3.5% down payment on something like this. Some local community banks may also have easier down-payment requirements, but maybe not. I’d say with low credit the FHA is probably your best bet. That said, it shouldn’t take more than a year or so to clean up bad credit to decent credit – so if it were me, I’d focus #1 on that and then worry about buying something. Hope that helps!

  13. I was able to get the rate down to 4.8% in 2014 with a 4-plex. The monthly cashflow is awesome. ROI is 10-15%, it’s way better than dividend paying stock, but you got to diversity. Can’t put your eggs in one basket. I’ll recommend anyone to go for a 4-plex if you can afford it.

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