Fourplex Basics: What You Should Know Before You Invest

You can approach real estate investing in several ways, choosing among various strategies to generate profits from different investment property types. A fourplex is a valuable option for a real estate investor who prioritizes simple property management and high cash flow. These properties are known for their relatively low entry price and high cash flow, but is buying one worth the investment?

Let’s explore the concept of a fourplex and what you should know before investing in one.

A fourplex is a multifamily home that typically houses four families under one roof. The layout can be side by side or stacked on top of each other. Typically, they’re a combination of both. Each residence has its own entrance, kitchen and bathrooms in a standard fourplex, but tenants may share a common foyer or entryway.

Fourplex is the commonly used term, but this type of multifamily property is also known as a quadplex or quadriplex. The suffix -plex refers to something made of several parts. For example, a house with two separate living units is a duplex. In the case of a fourplex, it’s a building with four separate living units.

One of the many reasons fourplexes are popular with real estate investors is their low price in relation to potential income. Earning rental income from up to four tenants instead of one tenant at one property will boost your cash flow.

Fourplexes can be a profit-generating investment when they’re in the right location and properly managed, but every fourplex you see may not be a good investment for you. Before approaching buying a fourplex, you should weigh its advantages and disadvantages.

The Benefits Of Fourplex Apartments

Investing in a fourplex can offer several advantages.

• They can potentially generate more rental income than other types of multifamily homes, such as duplexes and triplexes.
  
  
• You can use a residential loan to purchase a fourplex instead of a commercial loan.
  
  
• Because all the units are in one building, property management is generally easier than managing several single-family properties or apartment buildings.

The Drawbacks Of Fourplex Apartments

Investing in a fourplex also has disadvantages to consider.

• Keeping apartments occupied will require time and effort, from interviewing new tenants to maintaining the units.
  
  
• Fourplexes may experience high tenant turnover.
  
  
• Multifamily properties can be more expensive than single-family homes to invest in.

When choosing the best investment opportunity, consider location, financing and the potential return on your investment.

1. Research The Local Housing Market

Consider these factors when researching the local housing market: population size, job market, schools, median income, safety and type of neighborhood. Approaching your research with a clear set of parameters and objectives is key to making sure you invest in the right opportunity.

2. Look For Listings

To find fourplexes on the market, consider searching a multiple listing service (MLS), partnering with a real estate agent or networking to find off-market listings.

3. Lean On Real Estate Investing Metrics

To make an informed decision about a property, leverage important financial benchmarks, such as net operating income and the 1% rule.

Net operating income (NOI) is a formula that measures a property’s ability to generate positive cash flow from the business. This formula helps estimate the value of the property.

The 1% rule is a quick way to determine whether an investment property will provide the monthly cash flow you need. Multiply the property's purchase price (plus any repairs) by 1% to estimate the minimum monthly rent you’ll need to make to exceed the property’s mortgage payment.

You don’t have to dismiss a property because it’s just shy of meeting the 1% rule, but if the result doesn’t come close, that may be a sign that you should keep shopping around.

Fourplexes are a great investment strategy for beginners due to their relatively low barriers to entry. They’re a good way to generate a healthy cash flow, are easier to manage than four individual properties and you can use a residential loan to purchase a property.

Although fourplexes can be a sound investment, unlike some passive income streams, fourplexes involve a certain level of hands-on management, and you must keep the property occupied to turn a profit. If you’re ready to shop for financing, you can start the application process today.