Buying a fourplex and renting it out can be a highly profitable real estate investment strategy. The high rental income that these rental properties generate makes them the perfect positive cash flow investment. So what are the steps to buying a fourplex rental property? How much is needed to buy a fourplex? And how should you go about obtaining financing for these multi-unit properties? This guide will answer these questions in detail and show you how to buy a fourplex in a few simple steps.
Definition of a Fourplex
A fourplex is an investment property that consists of four units. These multi family homes have become extremely popular with real estate investors for a host of reasons. Here are some of the advantages that contribute to the increasing interest in fourplex investing:
- Generating positive cash flow with these rental properties is relatively easy thanks to the multiple income streams.
- They are the largest real estate properties you can invest in using an FHA loan.
- Fourplex homes are easier to manage compared to 4 single family homes in different locations.
- They offer good value for the money.
After this brief description, let’s delve a little deeper into how to buy a fourplex for sale.
How to Buy a Fourplex in 4 Easy Steps
Investing in the housing market is a process that starts with a clear definition of objectives as well as a proper assessment of the financing options that are available to the real estate investor. Here is how you can tackle this one step at a time.
1- Find fourplex homes for sale
The first step of the process is the investment property search. There are several ways to do this. The most obvious approach is to search for a rental property yourself. In fact, there are several property search tools for investors that can help you identify the ideal real estate investment. The best thing about using these tools is the fact that you can personalize the search and narrow it down to your exact preferences. As for which tool to use when you’re trying to search for a fourplex to buy, the Mashvisor Property Finder should be your go-to option.
Another effective way of finding investment properties is to work with a real estate agent. These professionals can help you zero-in on the exact types of rental properties that you’re looking for. Moreover, their experience can be of tremendous benefit to you when you’re trying to figure out which rental strategy is best.
2- Evaluate the profitability of the investment property
The next step of fourplex investing is investment property analysis. This is where you will assess the property’s ability to generate profit. This step is fairly multifaceted and requires careful consideration of several moving parts. First of all, you will need to hire an inspector to ensure that the building is fit for occupation. After making sure that everything is in order, your focus should shift to the financial aspects of the property. Here is what you should determine:
- Ask local lenders to inquire about the vacancy rate
- Determine the expected property management costs
- Calculate the potential income that the investment property can generate
Fortunately, you won’t have to take on this task manually. In fact, you can let AI handle it. Thanks to the rental property calculator, you’re able to assess the profitability of a fourplex investment property in a matter of minutes.
Learn More: How to Do Investment Property Analysis
3- Secure investment property financing
Unless you are planning on making a cash investment, exploring financing options is essential when looking for a 4 plex for sale. Let’s take a closer look at these options:
- Conventional loans: This is the most straightforward form of financing a fourplex. Having said that, it’s important to be aware of their limits. Conventional financing for fourplex properties often requires a down payment of 10% and has a limit of just under $1,000,000.
- FHA loans: As we mentioned earlier, fourplex homes are eligible for FHA loans. These are federally-insured mortgages that require as little as 5% for a down payment. However, getting approved requires the real estate investor to live in one of the units. This option is therefore ideal if you’re planning on house hacking.
Related: Can You Use FHA Loan for Investment Property Financing?
4- Close the real estate deal
Once you find the ideal fourplex investment property, make an offer and close the deal. Before you sign on the dotted line, there are several steps that you need to take in order to ensure a smooth transaction. The first thing you need to consider is working with a title company that has extensive experience in multi-unit real estate deals. This experience is especially needed when the rental property has tenants. Furthermore, you need to mitigate any potential risks by getting title insurance.
Another factor to keep in mind when closing the purchase is deposit transfers. In fact, buying a fourplex with tenants involves dealing with multiple security deposits. Most jurisdictions require landlords to handle these deposits in separate trust accounts. To avoid any legal issues, make sure that the deposits are transferred from the previous seller to a separate account the moment you close the purchase.
The Importance of Property Valuation
Besides the guidelines outlined above, there are several factors to keep in mind when you are trying to find a fourplex for sale. For example, having a clear idea of a fourplex property’s actual value is paramount for ensuring a good real estate deal. Determining this value requires using a number of methods. Two of the most effective ones are comp analysis and replacement cost valuation. The former is simply a direct comparative method that seeks to estimate the value of a property by comparing it to similar listings in the area. As for the latter, it arrives at the value by estimating the cost of constructing a similar building.
Related: 3 Main Property Valuation Methods for Real Estate Investors
The Bottom Line
Renting out a fourplex is one of the most profitable and convenient strategies, as long as you properly learn how to buy a fourplex. Opting for these multi family real estate properties will help you generate high rental income without the hassle of managing multiple separate properties. Implement the best practices discussed in this article and start looking for multi family homes for sale right now!