There are several ways to approach real estate investing. In fact, there is a multitude of strategies that vary in terms of potential profits as well as property management requirements. For real estate investors who prioritize high cash flow, a 4 plex real estate investment is often the go-to option. But is buying a fourplex a good investment? What to look for when buying a fourplex? And what are the most important things that a real estate investor should know before looking for a fourplex for sale? This article will delve into these questions in detail and show you how to buy a fourplex without falling into the common traps that many real estate investors fail to avoid.
What Makes Buying a Fourplex a Good Investment?
Buying a fourplex has always been a reliable way to generate cash flow in real estate. These income properties are relatively easy to manage and the profit that they yield can be substantially higher than what you would have gotten from four separate real estate investments. Here are the main advantages of buying a fourplex:
- They generate high cash flow for a relatively low price. The most obvious advantage of buying a fourplex is the high cash flow that you can generate from them. Despite boasting four units, fourplex properties are often undervalued relative to the rental income that they provide real estate investors with. This is because the demand for these properties is typically lower than for other types of income properties.
- Fourplex financing offers favorable terms: It might seem counter-intuitive, but financing a fourplex investment is very simple. In fact, the terms tend to be quite favorable. Your options include everything from conventional loans to private financing. Moreover, buying a fourplex with an FHA loan is possible if you implement a house hacking strategy. FHA owner-occupied multi-family financing only requires a down payment of 3.5%.
- They are easy to manage: Another great thing about buying a fourplex property is the simple fact that they are easy to manage. Since the units are located on the same property, you will be able to stay on top of every property management issue without having to split your attention between 4 different homes.
- Buying a fourplex property comes with extra tax breaks. As you surely know, real estate offers many tax breaks to investors. In the case of fourplex properties, you can deduct expenses from all the units that you are not occupying.
The 4 Things You Should Be Aware of Before Buying a Fourplex Property
Like any other type of real estate investment, making a profit from fourplex properties is predicated on having a full understanding of how this particular market works. To maximize your chances of generating a good return on investment, make sure to take these factors into consideration before buying a fourplex.
1- A fourplex does not necessarily require separate meters
One of the first things that you need to figure out when renting out a fourplex is how to handle utility bills. While most real estate investors prefer to add separate meters for each unit, it is important to note that this is not necessarily the ideal option. In fact, this can end up being an expense that adds nothing to your bottom line. The best way to manage utilities is to divide the total bill by the number of units before adding a small buffer depending on which renter uses excess. To avoid any potential issues with your tenants down the line, make sure to explain this arrangement beforehand.
2- Capital reserves for a fourplex should be around 20%
Capital reserves are something every real estate investor must be aware of. In fact, they are required for covering all future expenses and potential emergencies. In the case of fourplex properties, capital expenses are generally higher compared to other types of real estate investments. As a result, it is highly advisable that you save up to 20% of revenue on a monthly basis.
3- Location is extremely important
Location plays a significant role in your real estate investment’s success or failure. This is why you should concentrate on finding a fourplex that is located in an ideal real estate market. Conduct thorough real estate market research and narrow your focus down to areas that have a booming economy, a healthy job market, and a growing population.
You can also take your location search to the next level by zeroing in on the top-performing neighborhoods. You can achieve this by using the real estate heatmap. Thanks to its use of property data and visual cues, this tool allows you to identify where the best fourplex properties are on a map. Furthermore, the real estate heatmap features a filter that only shows multifamily properties (if you sign up for an Expert Plan with Mashvisor). This makes finding multi family homes for sale a quick and convenient process.
4- You need to conduct an investment property analysis
Conducting an investment property analysis before buying a fourplex is essential to generating a profit. In fact, this is without a doubt the most important step of the investment process. This analysis will allow you to assess the viability of the fourplex and help you estimate the expenses that will incur as well as the income that you can generate from it. A thorough investment property analysis should take into consideration every variable that pertains to what goes in and out of your pocket. As you would expect, doing these calculations manually can be quite challenging. A more practical alternative is to use the Investment property calculator. This tool factors in a wide range of data when analyzing a fourplex and provides highly accurate ROI estimates.
The Bottom Line
Buying a fourplex is a great investment regardless of your level of experience. Whether you are planning on renting out all four units or house hacking after getting an FHA loan for an investment property, a fourplex is guaranteed to provide you with a steady source of revenue. Visit Mashvisor and find the perfect fourplex for sale right now!
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