The housing market offers a wide array of options to real estate investors. Anyone looking to get started in this lucrative business will have the luxury of choice between several types of real estate investments. This includes everything from small condos and single-family homes to large complexes and multi-family real estate properties. The latter option will be the focus of this blog. Keep reading as we explore the ins and outs of fourplex investing and outline what buying a fourplex can add to your real estate investment portfolio.
What Is a Fourplex?
Fourplex properties are multi-family homes that contain 4 apartment units. These medium-sized buildings have become increasingly popular with real estate investors. This is in part due to the fact that fourplex buildings are the largest properties you can invest in using a Federal Housing Administration (FHA) loan. This is essentially a mortgage that is insured by the federal government. In addition to this, fourplex properties offer a host of other benefits to multi-family investors. Let’s take a deeper dive into what these advantages are.
The Advantages of Buying a Fourplex Investment Property
The relative ease of financing a fourplex is just one of many reasons why real estate investors have flocked to these income properties. Here are some of the other factors that should make you consider owning a fourplex.
1- Putting up a fourplex for rent will generate high income
The most obvious advantage of owning a fourplex investment property is the high rental income that you stand to make from it. In fact, a fourplex will allow you to generate revenue that is equivalent to that of four investment properties without the large cash expenditures that come with operating multiple properties.
2- The price is significantly lower
One of the main pros of opting for a fourplex is, without a doubt, the low price. In fact, it’s not uncommon to find a fourplex for sale for a fraction of what some multi-family homes go for. This low price is ideal for conservative property investors who prefer to avoid taking on large real estate investments. Furthermore, it gives investors with small budgets the ability to save for a down payment fast.
3- A fourplex is easier to manage
Managing rental properties comes with several responsibilities and obligations. The arduousness of the process is further compounded when you are dealing with multiple rental properties. Since all units of a fourplex house are located in the same building, managing every aspect of the property will be much simpler than if you were dealing with four separate properties. Having said that, retaining the services of professional property management is still highly advisable if you are a beginner in the real estate business.
Related: Residential Property Management: Here’s How to Do It Yourself
Now that you’re aware of some of the advantages that fourplex properties offer, let’s take a look at the tips that you have to follow to guarantee a profitable real estate investment.
4 Tips You Need to Know Before Making a Multi-Family Investment
If you’re a novice investor, then you are probably asking yourself questions such as “how to buy a fourplex?” and “what should I know before buying a fourplex?”. The tips below will help answer these questions and guide you through the process of investing in a fourplex.
1- Invest in a location with solid fundamentals
Location is everything in real estate investing. The rental property that you invest in should be located in an area with good economic and demographic trends. The safest approach is to always bet on areas with a growing economy, a booming population, and a healthy employment sector. These fundamentals will ensure that your investment property is consistently generating positive cash flow.
Related:10 Best Places to Invest in Real Estate in 2019
2- Rental income should be at least 1% of the property’s price
This is one of the simplest and most effective ways to guarantee a decent return on investment. A fourplex that generates rental income above the 1% threshold boasts a high price to income ratio. This is known as the 1% rule and it will enable you to recoup your initial investment fairly quickly. Conversely, investment properties with lower rental income rates will achieve that over a much longer period.
3- Check listings on reputed real estate websites
While working with a real estate agent can yield good results, retaining the services of an agent can be quite expensive. As a matter of fact, agent commissions can be as high as 7% of the sale price. Some agents might even command a higher fee. Fortunately, there are simpler and cheaper alternatives. One such alternative is using real estate websites like Mashvisor. Not only will you find fourplex property listings all over the US real estate market, but you’ll be able to analyze them too.
4- Explore your state financing options
Smart financing is the key to the success of any real estate venture. In the case of fourplex properties, there are several state programs that can help investors finance the acquisition. You might be eligible for a state program depending on your jurisdiction and whether or not you’re a first-time buyer. Consult with a local professional to get a clear idea of the options that are available to you.
As long as you implement the tips outlined above, you should be able to get a good deal on a fourplex anywhere in the country.
Related: Financing a Multi-Family Property: A Beginner Investor’s Guide
Things to Keep in Mind When Closing the Deal
As is the case with most real estate transactions, there are several variables that you have to be aware of when finalizing a fourplex purchase. These variables encompass a number of legal and financial aspects. Some of the most crucial things that you have to familiarize yourself with include the amount of rent that is transferred to you after closing, the handling of security deposits, and the landlord obligations that you have to comply with. Get in touch with a legal expert to get a full understanding of the process.
The Verdict
Regardless of your level of experience in real estate, investing in a fourplex property can be a highly profitable strategy. The ease with which you can obtain investment property financing coupled with the high rental income that it can generate makes buying a fourplex a no-brainer for anyone looking to expand their real estate investment portfolio.