What is a fourplex?
A fourplex is a small residential building with 4 apartments; the word is like “duplex” meaning two units. The buildings usually look more like a large house than an apartment building. Remember to NOT treat these as a Residential Purchase but look at this and any other investment thru Investor or Commercial eyes. Many Residential agents feel that because these properties use Residential Financing and often the Residential Contract that a Fourplex should be sold like a Single Family House and this is simply not true.
Fourplex as an Investor
Many Investors build a portfolio exclusively with Fourplexes. There are many advantages to owning Fourplexes as a vehicle to invest with.
When you compare fourplexes to single family houses as an investment-here is the main difference. If you have a Single-Family and your tenant leaves-where is your income? You now have lost 100% of your income and you will need to turn the property, market and then re-tenant your investment. This can both be costly and time-consuming. When one tenant leaves the fourplex you have lost 25% of your income; you may have lost your profit margin but your expenses should have been met with no out of pocket capital contribution. If you lose two tenants you may have a small contribution but manageable. If you lose three tenants you had better evaluate your Property Manager and if you lose four tenants-CALL ME.
The second most popular reason is that you can still use Residential loans. These are almost always 25% down and amortized with a 30 year fixed interest rate. Additionally, 75% of the rental income can be used to qualify. Also, the loans costs are in line with a traditional Residential Loan as well as the processing time.
Here is the third and sometimes the least used but one of the reasons that I recommend these highly. Accelerated depreciation is a vehicle that is used to offset passive income tax. Large Hotels always use this and sometimes it is referred to as Chattel or Cost Segregation. Remember that Tenant Occupied Residential Property is depreciated on a 27.5-year depreciation schedule. With Accelerated Depreciation there are a number of items that can be depreciated over a period of 5-7 years. See Lunch and Learn Presentation for Chattel or not to Chattel. Some of the areas that benefit most from this form of depreciation are the bathrooms and kitchens. How many kitchens and bathrooms are in a Single Family home vs. a Fourplex?
Fourplex as Owner Occupied
New investors have a wide variety of options available to them when it comes to what kind of property they are going to focus on. In fact, one of the top questions I hear from investors is, “What would you do?”