Should I buy a triplex close by, or a fourplex further away?

Question

I live in a small town and currently rent, so commuting to work is only a 5 minute drive, and everything is really close by (walmart within 5 minute drive). I can finally buy my first house and would like it to be a multi-family property with an FHA loan. In my small town, there are a couple triplexes available. Real estate is pricey in my area. They're listed for about 400k, but RE agent said we could offer around 360k and be competitive. Rents are about $925-950 per month in my area for those types of units (2 bedroom).

There's a fourplex for sale that is probably within a 45 minute drive on a good day. Rents might be a little higher because it's closer to a bigger town, but mostly they're about the same. The fourplex has 3 two-bedroom units and 1 three-bedroom unit, so it could get a little more from rent with the 3 bedroom unit (maybe $1100). It's listed at 515k, but could probably offer something like 460k-480k.

What do you guys think? I guess the pricing is about the same per unit, but with a fourplex I'd get more units overall, and one of the units will be bigger (a 3 bed), so I could get a bit more rent. Or should I just go for the triplex and not have to commute so far?

Bill B. · Answer

It looks like your cost per unit is almost identical for almost identical rents. So barring a bad feeling about your towns future, you the closer one. In a year you can buy another and repeat. Then you’ll have 6 close units instead of 4 far ones.

When I visit LA for the car show and I see people sitting for hours in traffic I just chant “new job or new house, new job or new house...” I would never spend hours per day in my car.

Jerrett Wilson · Answer

@Ellie Narie My personal thought, the fourplex might cash flow a little better but at what cost? You said 45 minute commute on a good day, I’m guessing for work, both ways is 1.5 hours x 5 days a week is 7.5 hours a week or 30 hours a month your losing out on. That time could be better spent elsewhere, especially if your personal hourly value is minimum 15/hr that’s $450/mo. Which might be a loss going with the fourplex.

If you’re house hacking and your mortgage or most of it is paid for by the other 2 tenants for the triplex then my personal thought is go with that and utilize your time to analyze deals, attend meetups, and acquire more properties.

Using rough numbers from a standard Zillow mortgage calculator at 4% interest this is what I see. Your numbers may be different

Triplex:

PITI+PMI: $2,352Incoming rent: $1,900

This isn’t counting CapEx, Vacancy, Repairs & maintenance, but you’re looking at a cost of $452 a month.

Fourplex:

PITI+PMI: $2,987

Incoming rent: 3,000

Once again not counting the other expenses you’re gaining $13 but losing 30 hours a month of time.

All in all just check out all the factors considered. None of my math accounts for appreciation, loan pay down, renovation costs, etc. just simple basics.

Good luck!

Should I buy a triplex close by, or a fourplex further away?

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