For anyone that wants to look for investment options in the real estate market, there seems to be a seemingly never-ending list. When it comes to real estate investment options, there is one that stands out: a fourplex. At Zumbly, our property database provides investment scores, estimated rental values, and other data for fourplexes and other kinds of homes. Here’s what you need to know about fourplexes.
What is a fourplex?
A fourplex property is a multi-family home that has 4 individual units. Fourplexes fall under multi-family real estate properties. Fourplex gives all the benefits of having a shared space without any of the drawbacks. A fourplex property owner who chooses to live on the property in one of the units can offset costs, since they are receiving rent from the other 3 units.
Fourplex properties have separate entrances, separate living spaces, and separate lives. This adds the benefits of privacy and personal space into their living situation.
Why invest in a fourplex?
As a real estate investor, there are many reasons why a fourplex might be the right horse to bet on. A fourplex has many features to it, most of them incredibly positive from an investor’s perspective.
Higher Rental Income
Owning a fourplex comes down to simple math. The rental income that is generated from a fourplex is equal to that of owning four different investment properties. Not just that, when it comes to a fourplex, there is diversification of rent. If a single-family home is vacant, the owner is out of all of their rental income for that period of time. When it comes to a fourplex, the chances of all four units being vacant at the same time are next to none.
This puts the investor at an advantage of higher cash flow and lesser risk as compared to a single-family home.
The name of the game with a fourplex is privacy. Unlike many shared spaces, fourplexes aren’t codependent. Again, all units are completely separated. This means that privacy is a huge plus point, helping to separate fourplexes from other investment options.
Even if the investor chooses to stay in one of the units, there is still a sense of separation and independence between the tenants and the landlord.
Having a property as an investment is no piece of cake. It comes with its fair share of responsibilities and commitments. Property owners are largely responsible for the upkeep, management, and repairs of their properties. For investors that own multiple properties, this becomes a huge pain point, mostly due to their different locations and different requirements.
While the thought of owning a fourplex is intimidating to many, there are noticeable upsides to it. One such benefit is property management. All four units are on the same property. That means that, despite the scale, managing these units and carrying out any maintenance or repairs becomes fairly easier. They share a common infrastructure,so the investor or the property manager only needs to familiarize themselves with these logistical technicalities one time.
Economies Of Scale
Owning a fourplex is all about tapping into the benefits of scalability. Everything from taxes, cleaning, lawn care, etc makes sense for a fourplex from a financial perspective. These operations only need to be completed once each cycle. As a result, it is more affordable than having to do complete separate paperwork for several properties time and time again.
Similarly, any small upgrade or amenity inclusion will apply to all properties. Any addition to the backyard will increase the value of all four units on a monthly basis, while the cost of installation is just one time. Such additions truly put the benefits of scalability into perspective.
Easy Financing Options
Financing is key when it comes to purchasing any property. A fourplex, despite contrary beliefs, is one of the best properties to acquire financing for.
The federal government classifies 1 to 4 unit properties as residential real estate. Buildings that exceed this limit fall under commercial financing. On the other hand, a fourplex is eligible for residential financing. This translates to a 30-year, fixed-rate term. Fourplex properties are also eligible for FHA loans. This usually comes with a decent down payment option of 3.5 percent, as it is designed for low- to moderate-income borrowers without a significant credit history. They do come with the requirement of living in a unit for at least a year.
Even in such a scenario, around 75 percent of the rental income counts as a qualifying income on the loan application. The fixed interest rate, no prepayment penalty or balloon payment, and low mortgage rates make financing easier for the purchase of a fourplex property.
Ways to find a fourplex
When it comes to looking for a fourplex property to invest in, there are some reliable options for investors, whether they’re first-time investors or seasoned ones. These options are your best bet for finding the right fourplex.
Work With Investors
The role of networking in any space is an important one. The same is doubly true for the real estate industry. Insiders often know everything that is happening in their industry, so when it comes to seeking a multi-unit property, a good option is to reach out to investors.
Many areas have a Real Estate Investors Association or REIA. Enrolling in such organizations brings investors together for learning, networking and sharing details on any properties that are up for sale. Fourplexes are likely to be found among investors because they see the value in owning or being informed about the sale of one rather than a layman. They’ll most likely tell the seeker about any such properties or at least get them in touch with someone who knows about them.
Use A Real Estate Website
Bring the search of a fourplex into the digital era with the use of a reliable real estate website like Zumbly. This puts the investor at an advantage, as they don’t have to rely on the connections and reach of a single person.
With the help of Zumbly, one can filter to look only for fourplexes in any location and also opt-in to receive alerts for when a fourplex goes live on the market. A real estate website is also regularly updated to provide the latest information and developments in any particular market, thus making property search easier for any investor that wants to buy a fourplex.
What factors should you consider when choosing a fourplex?
Buying a fourplex can be beneficial, but the process has a lot of moving parts that an investor should consider. A home is not an easy investment to decide upon, especially if it is a fourplex. Here are some factors to consider before deciding on a property:
Location Is Key
Home is where the heart is, and the hearts of investors and homeowners seek a vivid, thriving location. As an investor or homebuyer, the location of the fourplex is one of the most important factors to consider. The location has to be a solid one with easy access to amenities such as schools, hospitals, recreational areas, shopping areas, etc. Finding a fourplex in such a location is key to making a safe and sound investment.
Inspect The Building Condition
There is nothing worse than surprise expenses for an investor. It eats into their buffer cash and the sudden expenditure is highly unwelcome. To prevent this from happening, one must have the building thoroughly inspected by a professional. This gives the buyer an idea about the actual health of the building, possible repairs and their costs, and whether or not the property is a worthwhile investment.
A large property such as a fourplex comes with its fair share of expenses. These include paying property taxes, insurance, maintenance, utilities, professional services like legal or accounting. One has to take into account mortgage repayment and various seasonal expenses as well.
Turnover and Vacancy Rates
Multi-family homes tend to have higher turnover and vacancy rates in comparison to other properties. While the average vacancy rate is around 7% in the US, the rate for a multi-family home such as a fourplex is considered to be higher than that. It is best to talk to local investors to figure out the vacancy rate for a specific location.
The tenant turnover and vacancy rate vary from location to location.
A property investment decision shouldn’t be taken lightly. One must always carry out their own research, talk to as many people as possible, get informed and then start with the process of purchasing a property. There are many benefits to owning a fourplex, but it also comes with its fair share of responsibilities and duties that must be carried out by the property owner.