The Fourplex – A Real Estate Investors Solution to Tricky Houses

fourplexes investing for real estate investors

Are you struggling with a property you want to flip, but the market isn’t quite right to fix and sell it? Or maybe you have an older building where the architect designed a “unique interior” and layout. Instead of struggling on how to fix it up, or which walls to knock out, go with a fourplex!  But what is one?

A fourplex is a property that contains four separate living spaces, and there is no rule of thumb for stories tall, size, length or width.  They can be a house with four separate spaces, an apartment building, or any type of structure as long as there are four unique quarters where people can live separately.  If you’re a landlord, fourplexes attract tenants because they provide affordable and desirable living spaces.  And real estate investors love fourplexes because they offer a creative way to make more money off of a single rental property.  But those aren’t the only reasons fourplex properties are in demand.

They’re attractive to young couples and singles because these types of renters can live in a home with a yard for less money than buying their own houses.  Not to mention they can live in a house without roommates!  And these homes are usually in suburbs or nicer neighborhoods adding safety and security.  It’s sort of like living in a condo building, but less neighbors and more intimacy.  You get the right amount of socialization without the constant traffic of dozens of neighbors.  But the benefits of fourplexes mostly for real estate investors.

Flexibility is one of the key benefits of a fourplex, specifically when it comes to leases and pricing.  The first is diversifying your income levels with more stability.

With fourplexes you can list some units as short term and others as long term.  The short term units are attractive for corporate housing, military and study abroad students and you can charge a premium because of the shorter commitment on the renter side. Long term leases are perfect for professionals, young couples and singles that aren’t ready to buy, so you get less money per unit but have income over a longer time frame. If you need more money faster, turn a long term unit into short term, and if the market looks stable, turn a short term rental into a long term home.

The largest benefit to you if you’re an investor is that you have four separate units to rent out.  You don’t have to worry about renting the entire home to have money coming in.  If it is a single home, once the tenant is gone, your cash flow is gone until you find the next tenant.  As we said above, with a fourplex you can have a steady cash flow from the long term rental agreements and large bursts of revenue from the short term leases.

If you are a real estate investor and do not have a large staff, fourplexes have another advantage for you.  Upkeep on a fourplex is less time consuming because there is less travel in between properties. You can also complete all inspections in one swoop instead of multiple days at multiple properties. Not to mention the peace of mind with not having to worry about one roof, HVAC system, plumbing, lawns, etc. instead of multiple buildings.

You can also get creative with pricing and make more money with a fourplex than you can when renting the entire home to a single tenant.

For example, the rental price for a single family home in your market could be $1,300 per month. The cost per single bedroom apartment could be $450 and a studio $300. By having the same house as a fourplex you now have the ability to charge $1,650 per month if you charge market rate for each.

If there is parking, you can also charge per space vs. including parking spots it if the building was a standard home rental.  By adding the parking spaces in as separate rentals, you could be earning $1,800 per month if you charged $75 per space when compared to the market rate of $1,300 for a single tenant home rental.

Now remember, not all units in the building will be as desirable. Not everyone will be happy walking up one or two flights of stairs. Basements don’t always have as many windows making them not as appealing for a renter. By knowing this you can get creative.

In the same market prices mention above, why not charge $300 for the basement, $400 for the second floor unit and $550 per month for the two more desirable rental units.If your tenants in the basement or second floor like the house and want to stay, you can always move them from the less expensive units to the more expensive ones and repeat the process as tenants move out.

In the above scenario you’re now making $1.800 per month + the fees from the parking spaces you rent out separately. Your fourplex is now even more profitable than an even split based on a building with four identical or equally priced units.  This is based on perceived value.

It is important to note that if you plan on purchasing a fourplex using an FHA loan, you will not be able to live in it. That can be a deal breaker for someone looking to own a home and use the fourplex strategy as the groundwork for funding the purchase. The good news is that you can still use FHA loans to buy a fourplex.

One more financial advantage to adding a fourplex to your investment portfolio is the constant moving of tenants. If you have a tenant that stays for four or five years, you may not be able to raise their rent to match current market rates. This prevents you from being as profitable. By having people in and out in your fourplex, you can more easily increase rents as the next tenant moves in helping to keep capital coming in.

Now that you know the benefits of having a fourplex as part of your real estate investing portfolio, here are a couple of FAQs about the costs associated with owning or buying a fourplex.

How much does it Cost to Build a Fourplex?

The average cost to build a multifamily home is $64,500-$86,000 per unit. With four units, it can cost anywhere from $258,000-$336,000 to build. However you can likely find fourplexes already for sale on the market. It’ll be up to you to either rehab them yourself to save some money, or to find a contractor you trust who can do it for you. This may be the less expensive route.

How much does it Cost to Rehab a Fourplex?

The average cost to rehab an apartment is $20-$50 per square foot. If each unit is about 300 square feet, renovation costs can range from $6,000-$15,000 per unit. Please note that most units will be larger so you’ll want to adjust the prices based on the property you buy.

How much does it Cost to Manage a Fourplex?

Management fees of multifamily properties normally range from 4-12 percent of the overall monthly rent. If your property generates a total of $2000 of rent per month, management fees will typically be between $80-$200. Make sure you figure out what you need to set aside to properly manage the property before you set your rental prices.

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