Is a owner-occupied fourplex a good investment idea?

Question

Is a owner-occupied fourplex a good investment idea? and is FHA the best way to finance it?

Dennis Nguyen · Answer

Definitely a great idea. Live in one unit and rent out the other 3 to offset your mortgage or even get paid to live there. Repeat the process again a year or two later and that's how you can accumulate properties with little money down!

Kevin Escobar · Answer

If you can buy a quadplex with 3.5% down FHA loan and live for free/potentially make money while living there I think its a great idea!

Eugene Fedotov · Answer

It may be a good idea as long as your tenants do not know you are the owner.

Roi Ford · Answer

@Fadi "Rock" Roukoz

Yes, absolutely.  It’s the one of the oldest, tried and true methods for entry level multifamily investing. And yes, yes, yes to starting with FHA financing. The down payment is nice and low.

Just make sure you make your money on the front end when you buy.  Meaning, negotiate the lowest possible purchase price.

The downside to FHA and the low down is the potential of being over leveraged, however, if you negotiate a low purchase price, this can help later on down the road.

I say go for it.

Ace Kaspar · Answer

Hi Fadi,This is a great way to start or just adding to your portfolio. I am usually going with conventional or other methods. FHA has some fees associated with it that I am not a fan of but could be a great start if you don't have the capital to do 5% down.If you're good with it then I think its similar to house hacking but in the best way. You live for free and have your own place to yourself.Always happy to talk more in-depth and you can shoot me a dm anytime.

Zach Wain · Answer

FHA or VA for Vets, by far the best option for 2-4 units properties!!

Garrett Swan · Answer

Fadi- is this your first property? if so, I'd recommend reading "Managing Rental Properties" from the BP bookstore to get a general understanding how to operate your property efficiently. I would not worry about the tenants finding out you're the owner- even if something breaks or fails like a "no heat" text at 1am, yes that is scary to receive but that the reality is a lot of non-emergency issues can be resolved in the morning. Make sure you screen your tenants well, have systems in place for when something does go wrong and make sure you find a good cash flowing property.

best of luck,

Garrett

Eric Fernwood · Answer

Hello @Fadi 'Rock' Roukoz,

In theory, living in one unit and renting the other three sounds great. You have a place to live and the other three units pay the mortgage. However, theory always loses to reality.

When the tenants find out you are the owner,

• Be prepared for every excuse imaginable why they cannot pay the rent. If you insist, then you will be subject to abuse. Probably from all three tenants.
• No matter how small the repair, expect people banging on your door to want it fixed now.
• Plan on being pestered for new appliances, window treatment, faucets, paint, carpets, etc. If you do not agree to the demands, you will be subject to abuse.
• When a tenant does not pay, you will be evicting someone you know. This will not be a pleasant situation and the other tenants will not be on your side. Be prepared for a lot of abuse.

An even bigger problem is that once a unit goes vacant, you need to find a replacement tenant. Do you:

• Have a lease agreement that is enforceable and conforms to all federal, state, county, and city regulations.
• Know how to enforce a contract within the limitations of the regulations? This includes court appearances, fees, and processes. When you lock a tenant out, you will be subject to a lot of abuse from all tenants.
• Do you know how to select a good tenant? Hint, FICO score is not the critical factor. Also, if you do not conform to all regulations, you could find yourself in serious trouble.

On paper, living in one unit and renting the others sound great. I believe reality will squash theory.

Is a owner-occupied fourplex a good investment idea?

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