October 19, 2019

Advantages of small multi-unit properties (4plex, triplex & duplex)

I have been investing in real estate for the last 5 years and through my experiences I realize that buying more units is much better than buying single family rentals.

If you’re thinking to yourself Why stress myself out with a 4Plex (a small 4-unit multifamily property)? The truth is you are going to be dealing with very similar stress when buying and managing a single-family rental (SFR).

When I refer to a 4Plex I mean a single building with 4 units inside and note to 4 separate houses that has been sold to you as a package. I would not consider that a 4Plex just because I would have to repair & maintain certain items such as roof, foundation, exterior, etc. times four. That would be a headache and costly for any investor.

Here are a few benefits that a 4plex has over a single family rental (SFR):

  1. Single Location – The first reason why I would buy a 4Plex is you can have 4 units at 1 location. This make it very easy to manage since all the units are in one area. This might seem trivial but imagine if you have to drive 10-20 miles apart to each house to do repairs or pay a maintenance guy to do those trips.

    He will be charging you more just for the trip alone. It just more efficient to have 4 units in one building at one location.

  2. Great Financing Terms – 4Plex has very favorable financing option such as FHA loan and Conventional loan.
    Also, you are allowed up to 10 residential loans under your name. Once you hit a 5+ unit properties you will need to finance with a commercial or private lender which can get more complex and might require applicable past experience, personal banking relationships, and the terms will definately not be as favorable as a 30 years fixed mortgage!

  3. Multiple Streams of income – Unlike single family rentals, a 4plex has 4 unita that will pay you monthly income and when one unit goes vacant you still have three occupied units still generating income to cover the mortgage, insurance and other bills! If you own a single rental you will be 100% vacant until it is rented out which means YOU pay the mortgage, YOU pay the bills, YOU pay commissions, you get the idea…

  4. Single Expense – If you own 4 separate houses you will have 4x the expenses. However, if you own a 4plex you will have 1 roof, 1 foundation, 1 insurance policy, and 1 exterior in a single building. This makes the 4plex property more cost effective versus owning 4 separate single rentals in different locations. You get more value for your money as a long-term investment when owning a 4plex.

  5. Fewer Competition – When buying a single-family rental property you will be competing with many new investors because the purchase price will be lower compared to a 4plex. The down payment for a 4plex will be slightly higher than the single rental but this will give you an opportunity to acquire the property at a more competitive price vs fighting over a single family.

Multifamily Investing might not be for everyone but for me, I believe it is one of the best long-term wealth building strategies. Sometime it takes a little creative thinking and boldness to achieve the success you want in life.

Written by: Chuong Pham