Guide to buying fourplex

Anyone looking to earn wealth will be pleased to know that there are multiple ways to do so. One of the most lucrative is real estate investing. The common properties to invest in include single-family homes, condos, and multi-family homes. Multi-family homes are properties with lower costs.

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What is a fourplex?

Here’s introducing the fourplex. As the name suggests, a fourplex is a property with four family units in one building. What is it about fourplexes that make them so alluring? Well, there’s the promise of making a mountain of cash. The perfect investment opportunity which has big returns. And a low-risk way to build passive income. Now that you know what a fourplex is and are considering buying a fourplex, whatever your reasons, there are crucial aspects you should consider.

As with any major real estate purchase decision, it is best to work with an experienced real estate agent. They can provide you with accurate information and are familiar with the local market conditions. While it might sound very lucrative and an easy process, if you're researching this yourself in advance of finding the perfect property, this post should help provide the knowledge you need to make a decision.

Why buying a fourplex is a good investment

Despite what many think, fourplexes are quite common, and by investing in a fourplex, you're not taking on the risk of a new industry. Fourplexes can be an excellent way to invest in real estate as they're often the cheaper option, compared to other types of investment properties such as a single or two-family house.

  • Fourplexes have been around since the 1960s. This means that there's a wealth of experience among brokers who have been buying and selling these properties for decades.
  • It’s easier to get your unit in a fourplex rented out quickly so that you'll have money coming in consistently and allow for quick growth of your investment over time.
  • There are many options on how to approach generating income from your fourplex. One unit can be your primary residence, and the other three rented out. Or you could be the investor and rent out all four units.

Fourplex Investment

Where to find a fourplex?

If you're thinking about buying a fourplex, it's highly recommended that you be absolutely certain you understand the investment before making a purchase. That means first understanding the type of property you want to buy and then learning about the local market.

For example, the real estate market in Chicago ranked in 2020 as one of the best in multi-family markets. In this case, it’s a good choice to invest in a fourplex in Chicago.

Eight things to consider when buying a fourplex

1. Location

You can search for a fourplex on your own, with the help of a local real estate agent or through the local REIA (real estate investors association).

Before buying a fourplex, it’s best to check out the surrounding area. This way, you can get an idea of how much traffic and potential renters there will be in the area. It’s best to find a fourplex in an area that gets as much traffic as possible. It will make it easier for you if you decide to sell your property in the future and also make it less likely that you’ll have problems renting it out. You should also consider nearby businesses and how they impact the ability to rent your fourplex out to interested tenants.

The demographics of the area can also tell you a lot about potential renters and whether they are looking for short-term or long-term rentals. For example, students prefer short-term rental leases, whereas small families prefer long-term.

2. Current condition

It's important that you thoroughly look over the property as this is something that you will own, and you want to make sure that it is in good condition to avoid spending money on repairs and maintenance.

3. Size

Make sure that the units are large or small enough for your needs and the needs of potential renters. You don't want to purchase a property that you won't be able to manage down the road because buying a large fourplex now could mean that you need to downsize later on.

4. Inspection

When looking at fourplexes, you should thoroughly inspect each unit before deciding to buy. This is important because you want to make sure there are no structural problems with an individual unit. Otherwise, you'll end up having to pay money for unexpected repairs and maintenance.

If you're new to investing in real estate, it's a good idea to hire someone with experience in the field. They will help you with your inspection as they can offer their expert opinion on whether or not the property is fit for investment purposes.

Fourplex home Inspection

5. Market value and rental price

Always look around. Ask other fourplex owners or get a real estate agency to help you out. They can provide comparative market analysis to determine a value that is in line with the area. Something to consider right off the bat is your budget. With a fourplex, you’ll have to budget for the initial down payment and monthly mortgage payments.

When buying a fourplex, it's important to investigate the purchase price as this can significantly affect the future of your investment. As it is a low-risk investment, you want to ensure that paying a higher price will help you increase your returns.

Apart from the purchase price, you should also consider what rent to charge your potential tenants. The general rule is to have all rental income equal to or be greater than 1% of the total of what you paid. For example: $4,000+ monthly rent income on a $400,000 fourplex.

6. Financing

You won't have to pay interest on the down payment for a fourplex. If you have the cash for a down payment then this can make it easier to purchase. It will also allow you to buy near your current home or rent out one of your units.

If you don't have enough cash for a down payment, then consider refinancing your existing home. This way you will save on interest costs and use that money towards purchasing the fourplex. If you're planning on refinancing loans and using that money towards buying a fourplex, make sure that you shop around and find the best possible mortgage company.

7. Expenses and Monthly management fees

When it comes to purchasing a fourplex, you might not know what the exact amount of expenses will be. The following are just a few expenses that you’ll have to think about before you make a final decision:

  • Property taxes
  • Mortgage payments
  • Insurance
  • Property management fees, if outsourced, or maintenance costs if managing it yourself.

8. The neighborhood

If you plan on renting out the units in your fourplex, make sure that the neighborhood is welcoming towards renters, so the tenants who will reside in your building are unlikely to cause problems. A better option is purchasing a fourplex with tenants. They are already familiar with the property and can help with the upkeep and ensure that the units also remain in good condition.

Real estate photo

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The Ultimate Guide To Buying A Triplex

The pros of buying a fourplex

Successful fourplexes have found uniqueness in the market that distinguishes them from other types of investments. This allows them to attract tenants at rates significantly higher than other commercial property brokers.

Buying a fourplex affords you flexibility on all the units. Whether you are looking to lease for long-term rentals or some for short-term rentals.

There are many benefits to buying a fourplex as an investment. One of the biggest advantages is that the total of your monthly payments will be cheaper than compared to when purchasing a two-family home. Rather than paying mortgage payments for both the fourplex and a single home, you'll only have to pay for housing on a single unit.

This is another opportunity to improve your net worth by receiving income to offset your mortgage. As an added incentive to purchasing a fourplex, think about how much money you'll be able to earn from reselling the property after five years. It will help you increase the value of your net worth and possibly allow you to move on to a larger fourplex once your first investment is successful.

Pros to Buying a Fourplex

All properties require some amount of maintenance and attention from their owners. In a fourplex, all the units are part of one building. So if issues or problems surface, it’s easier to manage one property compared to separate ones. 

It's a low-risk investment, so if you're looking for a way to build your net worth without taking on a huge risk, then consider purchasing a fourplex as an extra source of income for retirement.

It’s also just as easy to obtain financing for a fourplex as compared to other forms of investment property like commercial properties or homes. This can be helpful if you don't have enough money for a down payment or cover closing costs. There are options, such as state programs, Federal Housing Administration (FHA), short-term financing, and seller financing. You will also qualify for investment property loans from the income you receive from renting the units.

The drawbacks of buying a fourplex

Some drawbacks of buying and living in one unit of a fourplex mean being there for the tenants at their every beck and call and can become harder to manage over time. It also means a lack of privacy and noise.

Like any other type of real estate investment property, it's important to make sure that you're protected when you buy a fourplex. This means that you'll want to make sure your insurance is up-to-date. When looking for insurance, you'll want to find the best rates possible so that you take all of your needs into consideration before choosing which company. This will ensure that you're fully protected both legally and financially.

Drawback to Buying Fourplex

To guarantee you bring in enough income to offset your mortgage, you can’t afford unforeseen expenses and maintenance costs to pop up, whether you do it yourself or hire a property management company to do it for you.

There is the possibility that not all the units are occupied all the same time. There are several reasons why this could happen:

  • Firstly, if the fourplex is not located in an ideal location, you might not find suitable tenants.
  • Secondly, an eviction or sudden notice from a tenant could leave a unit empty.
  • Thirdly, seasonal changes can affect demand and high turnover. For financial success, all units must be rented out. Be proactive and have this information before the purchase of the fourplex, calculate the vacancy rate.

Between 5-25% down payment is required when purchasing a fourplex. Although, there are some options where you can make a down payment of as little as 3.5%. This is possible with buying a fourplex with a Federal housing administration loan.

Since fourplexes are residential or mixed-use property, there's no need to involve an agent when purchasing one. However, if you are buying one in an area where there is little demand for them, remember that there will be risks associated with such an investment, and it’s better to consult an agent.

Do your research before buying a fourplex

If you are considering buying a fourplex, regardless if you are new to investing in the real estate market, it can be a good return on an investment strategy. When buying a fourplex, you'll want to do all of your research ahead of time to make sure you understand the market. Look at the local economy, and for steady employment growth, meaning paying tenants with jobs. The surrounding neighborhood should be safe and provide the basic amenities tenants are looking for. Overall, a fourplex will expand your investment portfolio and guarantee a steady revenue stream.

 

The team at getMULTIfamily.com are experts when it comes to multi-family real estate and have worked with numerous buyers and sellers over the years. Specializing in duplexes, triplexes, fourplexes and other multifamily homes, Get Multifamily is the obvious choice when considering your next purchase or sale. 

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