Sometimes in investing it pays to start small. Buying a fourplex or quadplex (4 units), a duplex (2 units), or a triplex (3 units) can be a great way for an investor to get started in the investment game.
Advantages of Buying a Fourplex Property
There are several advantages to purchasing this type of property.
Purchase Price is Smaller
Most duplex, triplex, and fouplex properties are less expensive than comparable commercial or multifamily properties. (This doesn’t ring true everywhere, see Walnut Creek, CA.) A lower purchase price allows the prudent investor to save for a down payment quicker.
Financing a Duplex/Triplex/Fourplex
The federal government classifies 1 to 4 unit properties as residential real estate. The two largest buyers of mortgages on the secondary market, Freddie Mac and Fannie Mae, use the government’s classification system when evaluating a purchase of a mortgage. This means that 2-4 unit properties are given similar underwriting standards that a single-family home is given.
This allows an investor to finance the first 4 investment properties with a lower down payment. A 5% difference in down payment (20% vs. 25%) can be $10,000’s.
An investor can also lock in fixed-rate financing for 30 years! Typical commercial and multifamily loans are refinanced every 3 to 10 years. The need to refinance more frequently subjects an investor to greater interest rate risk.
Fewer Management Issues
One of the elements of property ownership that novice investors forget is that of property management and maintenance. As people use stuff, it tends to break (even if they don’t use it it tends to break). Having a smaller complex to figure out maintenance and repairs of a property will be an easier transition for the newbie investor.
Another factor that makes these properties advantageous for an investor is the concentration of maintenance issues. If you own 4 rental homes or a fourplex you have 4 toilets that may get broken and need repairs. The advantage of owning the fourplex is that the toilets are concentrated in one location and you only have one lawn to mow!