Fourplex Pros, Cons, & Tips For Investors

A fourplex may be a good place to start if you’re considering testing the waters as a residential real estate investor. It’s also a sound investment for the first-time homebuyer, as you can live in one of the fourplex units and rent the others—your tenants pay the mortgage. If you want it strictly as an investment property, that’s not a problem, although it may limit some attractive financing options.

What Is a Fourplex?

A fourplex is a multifamily home with four separate units under one roof. You may also hear it referred to as a quadplex. Each unit has its own entrance. Some fourplexes include a common building entrance with separate interior entrances for each unit. The units are either side-by-side or stacked on top of each other.

From the street, a common entrance quadplex may resemble a large, single-family home. 

Fourplex Investing Pros

There are plenty of reasons to invest in a fourplex. Here are some of the best:

Additional cash flow potential

If you’re looking for cash flow, a fourplex represents a better deal than two-to-three-unit properties. Each unit represents an income stream. 

Favorable financing

Quintplex isn’t a term used by most real estate investors. That’s because once a multifamily building surpasses four units, it’s considered a commercial, not residential, property. That makes financing for fourplexes more favorable, as you can obtain a residential mortgage rather than the commercial loan necessary for five or more units.

One mortgage for multiple doors

Buy several single-family homes as investments, and you’ll likely pay a separate mortgage for each property. If you live in your fourplex, you’ve got just one mortgage payment and property tax bill. Paperwork and recordkeeping are simpler.

Economies of scale

Because you’ve got four units, you will pay less on expenses due to economies of scale. That’s true of insurance, lawn care, and snow plowing.

Tax advantages

You’ll pay lower property taxes on a fourplex than if you purchased four separate rental properties. You may receive other tax breaks, such as real estate depreciation and investment tax deductions.

Tenant loss is less impactful

When a tenant leaves, you lose money if the property remains vacant. However, if you are a duplex property owner and rent out one unit, you will lose all rental income if a tenant leaves. When one tenant leaves a fourplex, you still have rents coming in from two to three units, depending on whether you are an on-site owner.

Fourplex Investing Cons

For all the pluses, there are still some reasons a fourplex isn’t suitable for every new investor. Think about whether you can handle the following before investing in a fourplex.

Management responsibilities

It’s one thing for an investor to manage one or two other units themselves. A properly managed fourplex takes a lot more time and effort. If you don’t reside in one of the units, you deal with at least three and possibly four separate tenants. That manageability is one reason the fourplex is in far less demand than a duplex or triplex. Of course, managing a fourplex is still easier than caring for four separate single-family properties. Many investors hire a property management company to oversee their fourplex buildings.

Harder to sell

Because there is less demand for a fourplex compared to duplex properties, it’s often harder for fourplex owners to sell when the time comes.

Less privacy

If using one of the units as your dwelling, expect tenants to knock on your door when issues arise. Expect less privacy when you’re an on-site fourplex landlord. On the plus side, when repairs are needed, or emergencies happen, you’re right there rather than having to go to your rental. While you enjoy less privacy, you benefit from greater convenience.

High tenant turnover

Fourplexes tend to have higher tenant turnover than single-family dwellings. For tenants, fourplex buildings tend to be starter living spaces. Many fourplex tenants wait until the single-family housing market becomes more attractive or save a large enough down payment to move.

How To Find a Fourplex

Work with a local real estate agent or use the MLS to find available fourplexes. BiggerPockets agent finder can match you with an investor-friendly agent specializing in multifamily property deals.

If there is not a suitable inventory of fourplex living units in the local housing market you’re targeting, contact the owners of fourplexes in the area and ask them if they are considering selling. Find the owner by visiting the municipal tax assessor’s or the county recorder’s website. Information from the assessor will include current property taxes.

Financing Your Fourplex

When it comes to financing, a fourplex holds several advantages. A fourplex does not meet the five-unit requirement for a commercial loan, so you can obtain a conventional residential loan with a 30-year fixed-rate mortgage for this investment. 

No matter the current interest rate environment, residential mortgages have lower rates than commercial loans.

FHA loans

Financing is even more advantageous when utilizing a Federal Housing Administration (FHA) loan. The minimum down payment for an FHA loan is just 3.5 percent of the purchase price. Buyers may qualify with a lower credit score than conventional mortgages, at just 580. Purchasers with a credit score of 500 may qualify with a 10 percent down payment. Under FHA rules, you can buy a property with up to four units. A caveat is that you must live in one of the units.

VA loans

Veterans can finance a fourplex with 0 percent down with a VA loan. Interest rates are also lower than with a conventional loan. However, while you can become a fourplex owner via a VA loan, you must reside in one of the units. A VA loan is available only for primary residences, not investment properties. A fourplex offers the best of both worlds.

Can You Live In Your Fourplex and Still Generate Rental Income?

Yes, living in your fourplex and generating rental income from the other units is a prime reason for investing in this type of housing. Live in one unit as an on-site owner, and your tenants pay your mortgage. This arrangement makes a great house hack.

Do you have family or friends seeking a home but don’t want to share your dwelling space with them? A fourplex allows you to rent units to them without sharing your kitchen, living room, bathroom, or personal privacy. While under the same roof, walls and separate entrances allow for seclusion. 

Tips for Investors Interested in a Fourplex

If you’re interested in a fourplex as your next investment property, here are a few tips to follow to ensure you’re maximizing your cash flow:

• Find a good location: As with any real estate investment, the mantra of “location, location, location” holds sway. Look for quadplexes in safe neighborhoods with a strong job market, near shopping, recreational opportunities, and a good school system.
• Determine how to handle utilities: Decide how you want to handle the utilities for each tenant. For example, a separate water meter for each unit billed to the tenant means they pay exactly what they owe. A separate bill means a separate, often steep base fee. If you pay the water bill as a landlord, there’s just one base fee, and you can divide water usage by four. You can raise the rent if water costs increase significantly. You’ll also have tenants saying they aren’t using more water, and the other tenants are at fault.
• Carefully screen your tenants: Perform careful background checks for every tenant. While you would certainly do that with people you don’t know, it may prove a delicate subject if one or more of your potential tenants is a friend or relative. You may know that there is no criminal or eviction history, but you may not know whether that person pays their bills. A credit check report reveals their credit score, much of which is determined by timely bill payments. You don’t want to worry about whether a tenant will pay their monthly rent.

Is a Fourplex Right for You?

Is a fourplex a good investment for you? Much will depend on whether you live in one of the units or are an absentee investor. For the latter, a good property manager is almost always a necessity. 

Consider a fourplex if you’re just getting started in real estate investing. Along with attractive financing choices for fourplex buyers, such a purchase offers hands-on experience with property management. You might find this is right up your alley or that you are better suited to a more passive investment. It’s an opportunity to learn more about real estate investing and yourself. 

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.