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Fourplex vs. Triplex vs. Duplex: Which Should You Invest In?

Written by Than Merrill

Have you heard of the term ‘house hacking’? It’s a strategy through which you can get rid of your housing expenses and pave a path toward financial freedom. The trick is to buy a multifamily property as your primary residence and rent out the other units. If you get the right deal, you could cover all or most of your mortgage using the rental income. It’s also your launchpad to becoming a real estate investor. Buying a duplex, triplex, or fourplex are all great investments, so which one should you choose? We’ll explore the reasons why a fourplex might be the winning choice.

Fourplex plans

What Is A Fourplex?

A fourplex is a type of multifamily property that comprises four units. Fourplex plans feature separate entrances and living spaces with at least one shared wall between each unit. They’re designed to house up to four separate families comfortably.

Renters might choose a fourplex instead of a single-family home if they want to save on housing costs. This is common in urban centers where affordable housing is limited. If you have a tight budget but don’t want to live in an apartment, fourplexes are a great alternative.

If you’re interested in buying a fourplex but think they’re out of your price range, don’t get discouraged. Instead, keep reading to find out how ease of financing is one of the main advantages of buying a fourplex.


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Benefits Of A Fourplex

If you’re looking to buy an income property but don’t think you could afford a fourplex, don’t give up just yet. The FHA Loan is a federally-backed home loan that assists first-time homebuyers. It offers low down payment options and favorable terms. It might surprise you to learn that multifamily properties are one of the allowable categories under the FHA Loan. A fourplex is the largest possible property type within that category and can be financed with a residential loan as long as it’ll be owner-occupied. This is just one of the many benefits associated with a fourplex.

Generate Income Immediately

Most homeowners won’t earn any income from their primary residence. Even if they were to move out and turn their home into a rental property, that likely wouldn’t happen until much later.

By buying a fourplex, you can start generating rental income right away. Assuming that you live in one of the units, you can earn income from the three remaining units. Experienced income property investors always crunch the numbers before they make a purchase. They’ll make sure that the rental income generated will cover all expenses, including the mortgage, maintenance, repairs, and property taxes. You may not earn a profit right away, but your housing costs could be covered while you build equity in the property.

Low Prices

Duplexes, fourplexes, condos, and apartment complexes all belong to the multifamily housing family. A critical difference between these types is whether or not they’d be financed with a commercial or residential loan.

Any building with five or more units requires a commercial loan. This means that your down payment is a minimum of 20 percent, and your interest rate and monthly payments could fluctuate. Any owner-occupied property under five units qualifies for a conventional loan. You could get a 30 year, fixed-rate mortgage. With the FHA loan, your down payment could be as low as 3.5 percent.

If you think of your investment through this lens, buying a fourplex gives you the biggest bang for your buck. First, you’re maximizing the number of units without having to take out a commercial loan. Further, your rent-to-price ratio will likely be best in the “duplex, triplex, fourplex” category.

Tax Benefits

Who doesn’t love tax benefits? You’ll be glad to hear that your tax deduction potential is maximized when you invest in a fourplex. Tax breaks include property depreciation, property tax write-offs, and deductions for any maintenance and upgrades. These are all on top of your residential property tax breaks.

Easy Management

Buying an income property means that you will have the responsibilities of a landlord. However, fourplex owners enjoy the consolidation of their duties. Instead of managing tenants across multiple properties in different locations, you only have to manage your tenants at one location. If you don’t think you’re cut out for property management, you have the option of hiring a professional.

Best Economies Of Scale

One of the best advantages of a fourplex is that it will give you the best economies of scale out of any other residential property type. First, your expenses will be spread across four units instead of just one or two. For example, insurance premiums will only increase by a margin for each additional unit, lowering your overall cost per unit.

Second, you’re more protected in the case of a vacancy. Even if you have trouble filling an unexpected vacancy, you’re still earning income from the other units to help cover your expenses. The owner of a single-family home does not have this protection.

Last but not least, the returns on any improvement projects are multiplied. For example, let’s say you invest $3,000 to improve the exterior, which would have cost you about the same for a building with fewer units. Then, let’s say that these improvements justify a rent increase of $50. If you had owned a duplex, not counting the unit you live in, your annual return on the project would be 20 percent. As the owner of your fourplex, the annual return is 60 percent!


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Training For Commercial Buildings

After managing your first income property, you might become interested in growth. As the owner and operator of a fourplex, you now have the training wheels for operating a commercial multifamily building. Of course, you will encounter some new challenges and strategies to learn, but overall, you’ll have the foundation needed to successfully operate an apartment complex.
Fourplex house plans

Downsides Of A Fourplex

Although a fourplex offers many advantages, you should be wary of the disadvantages. First and foremost, you’ll need to commit to the idea of being a landlord. Not everyone is cut out for this job, even when they outsource the day-to-day operations to a management company. As the owner of a fourplex, you’ll need to prepare for living next to your tenants and the risk of high turnover.

Living Next To Tenants

First, you’ll need to face the reality that you’ll be living next to all of your tenants. This will provide some convenience, such as already being on-site in case of an urgent need. However, it can be challenging to create some boundaries with your tenants. You need to be friendly and welcoming enough so that your tenants feel comfortable. On the other hand, you don’t want to be so forgiving that they think it’s appropriate to come knocking on your door for every little need. It’s best to set clear expectations from the get-go and provide friendly yet firm reminders when needed.

High Tenant Turnover

Renters living in a single-family home tend to treat the house as if it were their own. Because they don’t share the premises with anyone else, they have more autonomy and a sense of ownership.

Renters of a fourplex may not have the same mindset. Because they share walls with three other tenants, they may treat the property as if they were in an apartment complex. This, at times, comes with dealing with higher tenant turnover and increased maintenance and repairs. However, this doesn’t have to be the case. You can select great tenants and create an environment in which tenants feel like they belong.

How To Find The Right Fourplex To Invest In

If you’ve never purchased a home, let alone an income property, your head is probably swimming with questions. Here are some tips to help you invest in a fourplex successfully:

  1. Research the local housing market

  2. Check the MLS

  3. Rely on real estate investing metrics

  4. Talk about your loan options

Research The Local Housing Market

The main objective of market research is to find an ideal neighborhood and get an initial temperature on pricing. A good location is one of the key factors that contribute to the success of an investment property. Factors to consider include population, job market, schools, transportation, median income, and safety. These are all indicators of the desirability of a specific neighborhood.

Check The MLS

Next, search for listings. You can do so by partnering up with a licensed real estate agent and search the MLS. You could also use public listing websites and even off-market properties.

Rely On Real Estate Investing Metrics

Get comfortable using various real estate investing formulas, which will help you project the profitability of an investing property. Investors who base their decisions off of gut instinct rarely succeed. Not sure which formulas you should know? We suggest starting with these 10 calculators that every real estate investor should know. Move forward once you’ve measured the potential profitability of a property from every angle and feel confident.

Talk About Your Loan Options

Talk to a lender once you’ve found your ideal listing and feel sure that it’s a solid investment. Unless you can pay all cash, you’ll need to leverage some funding. Outside of a conventional home loan, consider other types of loans you may qualify for, such as a first-time homebuyer loan or a VA loan. You may even skip the commercial lending options if you’re able to obtain a personal loan from a supportive relative.

Choosing Between Duplex, Triplex, & Fourplex

Choosing between buying a duplex, triplex, or fourplex can be tricky. Each option offers its own set of advantages and drawbacks.

One thing to consider is striking a balance between income and management. How much income do you want to make? How much responsibility in terms of management duties are you willing to take on? Don’t forget that management isn’t limited to collecting rent checks and making occasional repairs. You’ll also be responsible for maintenance, marketing, preventative work, accounting, and any other obligations that go under the property management umbrella.
You can outsource most duties, but it will eat into your income.

Your sweet spot will be where your desired income and management duties intersect.

Summary

Buying a fourplex can be a great way to launch your real estate investing career, especially if you’re a first-time homebuyer. A fourplex is the largest type of property that can be financed using an FHA loan, which allows you to put down as little as 3.5 percent. In other words, it’s the closest you can get to an apartment building using a conventional loan with favorable terms. You can also think of it as the perfect training ground if you’re interested in going into commercial real estate. Before you commit, make sure you’re ready to take on the responsibility of managing three tenants that you would share walls with. If you’re ready to get started, we recommend reading more on house hacking, multifamily investment property strategies, and how to finance a multifamily property investment.


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