how to buy four unit property

Buying a Four Unit Property: Step by Step Guide for Beginners

The real estate market provides an array of investment options. When getting started, you are spoiled for choice. The property you invest in depends on your long-term financial goals. Among the options, is a small multifamily home with four units (fourplex). Also known as a quadruplex.

The typical mentality is, as a beginner, you should first invest in a single-family home. Build your portfolio then smoothly slide into small multifamily housing. What if you want to invest in a fourplex? Do you have to go the conventional way and begin small? Definitely not!

A quadruplex is a profitable investment property, to start with. By buying a fourplex, paying rent becomes a story of the past. You graduate from a tenant to a landlord,  within a short period. Investing in a fourplex creates a pathway to get into real estate investing.

Not all properties make profitable investments. Knowing how to find the right property is crucial. To succeed, comprehend buying a fourplex and the upsides and downsides it comes with. Let us dig deep into a fourplex and understand the steps in acquiring one.

What is a Four Unit Property?

As the name suggests, it is a multi-family home with four separate complete living spaces attached under one roof. A fourplex can host four different families with each unit having its own entrance. The units can either be side by side in a single plot sharing one wall, or an apartment with each unit on its floor.

4 plex example

Why Invest in a Four Unit Property?

Fourplexes are increasingly gaining popularity in the real estate sector. Buying a fourplex offers the following unique advantages to the investor:

1. Income Generation

You stand to gain a high monthly rental income from a fourplex compared to a duplex and triplex. The cash flows are equivalent to those of four investment properties. The cost of operation in a fourplex is lower than maintaining four separate single-family homes. Therefore, its revenue is extremely attractive.

2. Live For Free

This is the best part of owning a fourplex. You can use it as your primary residence. Live in one unit and rent out the remaining three units. This smart move will ensure, you offset monthly mortgage payments and other housing expenses with your rental income. Save the remaining income and use it as a down payment to buy another property. You will live for free while building your portfolio.

3. Favorable Financing Terms

A quadruplex is the largest multi-family property that a residential loan can finance. As long as it is your principal residence, you will benefit from owner-occupied financing. Residential loans come with lower down payments and attractive interest rates.

4. Less Vacancy Burden

Think of it this way, if a tenant moves out of a duplex you lose 50% of your rental income. But with a four-unit property, you will lose 25%. The extra units that come with a fourplex, spread out the financial impact of unexpected vacancies.

5. Tax Benefits

Among the tax breaks, you will receive is deducting expenses such as depreciation and maintenance for all rented units.

6. Easy Management

With all your tenants under one roof, management is simplified. You don’t need to hire a property manager. On the brighter side, you will learn important skills as a landlord and gain management expertise.

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How to Buy a Four Unit Property

#1: Research and Have a Business Plan

Investing without outlined objectives is beginning on a thorny foundation.  How do you set your goals? Read and acquire all information on fourplexes. From the buying process, market information to the best localities.

Understand the pros and cons of investing in fourplexes. Get this knowledge from reading real estate investing books, listening to podcasts, and watching Youtube videos. Use the insights acquired to set your goals. Come up with a plan highlighting how you will achieve the objectives. Your investment plan will align your actions with your goals.

#2: Set Your Preferences

Lay down your preferred location and budget. How much do you want to spend on the property? Having researched you have pricing information. Get an estimated value to work with.

Define your location. Which locality do you have in mind? Ensure you select an area with attractive rental rates. Areas trending upward economically and demographically are profitable.

In what condition do you want your fourplex? Are you looking for a distressed home to renovate or a property ready to rent?

#3: Find Your Four Unit Property

Explore the following options to get a viable property:

  1. Real estate agent

At this stage, you are at liberty to engage a real estate agent. They are rich in market information. An agent will make your buying experience much easier. They will not only locate the right four unit property with you but also help you analyze it. Work with an agent to get the right property at the best price.

Use your real estate agent to access MLS-listed properties. The MLS has houses in a locality with extensive descriptions. Take notes on prospective homes that trigger interest.

  1. Real estate websites

Your four unit might be a click away.  Real estate websites like Zillow and list all types of property. Search by area and property type. The websites provide a full description of the property with pictures and video support.

  1. Real estate investment groups

Join your local real estate investment group and create a network. You might find a lead or even interact with a seller in the group. Build a database of your potential properties for easy analysis.

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#4: Property Analysis

You have done your search, and you have a list. How do you select the best property?

  1. Location

The first factor to analyze is the location of the four unit. This is the market you will trade-in. If you don’t choose right, you will be stuck with a property that is always vacant.

In a profitable neighborhood, the economic and jobs trends should be stable or growing. A growing population indicates more demand. For a superb choice, check on the standard of living, crime rate, and availability of social amenities.

  1. Property investment class

Select an investment property class. Multifamily homes for sale have different classes from A to D. Beginner investors should go for A to B properties because they are in stable neighborhoods with high occupancy rates.

  1. Real estate data and analytics on the property

To narrow down your options, get information on the average rental income, the cap rate, and the median listing price.

#5: Profit Analysis

You have all the information you need to check the viability of your investment property. Calculate your expected monthly income from the local rental rates.

Deduct all the expenses, including property taxes, mortgage payments, repair costs, and operating expenses. If you get a positive cash flow, the property is profitable. Computation is challenging. For easy analysis, make use of a multi-family investment calculator.

If the fourplex looks valuable from your analysis, visit the property in person. This is to get an idea of how the property looks like.

#6: Make an Offer

It is time to win the seller over. Research your seller and discover why they are selling the property. Know their needs. Understand fully your offer.

Convince the seller that you can help them. There will always be objections. Expect them and prepare the right responses. Have a firm walk-away figure to work with.

A professional real estate agent can also chip in at this point. They will help you in negotiating and bring the deal home. Don’t hesitate to work with one.

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#7: Carry Out an Inspection

If the seller accepts your offer, do a thorough inspection. Hire a professional inspector to check the property inside out. You don’t want surprises of major structural damages.

#8: Finance the Deal

To buy a four unit, choose any of the following financing options:

  1. FHA financing

To enjoy FHA financing, you must prove the property will be your primary residence. They offer mortgages with low down payments of up to 3.5%. However, you will pay mortgage insurance premiums.

  1. Conventional loans

These are traditional loans offered by banks. You will pay a down payment of at least 20% but enjoy fixed and low-interest rates.

  1. Hard money lenders

These are organizations that offer short-term investment loans. If you have a bad credit score and don’t mind high interest rates, you can try them

  1. Private money lenders

These are individuals who can finance your purchase for a share of profits or at good interest rates. It can be a family member, colleague, or friend. Their terms are favorable and negotiable.

#9: Close the Deal

Set up a complete real estate purchase agreement. The agreement should contain the names and details of the parties involved. It should highlight property details and property specifications. Don’t forget to include important dates.

You can hire a real estate attorney to help you with the paperwork. Close the sale! Happily move in and rent out the other units of your fourplex.

Bottom Line

As a new investor, a four-unit property is a profitable investment. Whether you rent all four units or house hack, you have guaranteed monthly rental income.

To get a valuable four unit property, do your research and follow the right procedure. Be keen on the neighborhood you invest in. A quadruplex is just the beginning. Save and grow your portfolio.

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