If you’re looking to commence your journey as a real estate investor, then instead of looking at the conventional options, maybe dig deep. Single Family Homes have proved to be a good investment, but Quadplex is proving a better investment.
If you’re looking for a house hack or seeking new property as a real estate pro, you should look into Quadplex, which could be the start of building wealth in your world.
What is a Quadplex?
A quadplex is a single building within which there are four separate units. Each unit is designed for a single family, meaning four families can live under the same roof in individual units in a Quadplex. A quadplex is sometimes known as quadruplex, fourplex, or four-flat.
If you’re familiar with duplex— a house based on two units— then you can imagine Quadplex to be double because it has four divisions. Even though Quadplex allows more families to live together, they are different from apartments because, from the exterior, they look like a single-family home.
There are also three-unit houses as well called triplex and 10 unit houses called 10-plexes. However, the special thing about the Quadplex is that it is the largest building you can purchase and still be entitled to a single-family mortgage payment.
Advantages of Buying a Quadplex
Buying a quadplex has many hidden benefits once you’re aware of the loopholes. So, if you’re on the verge of making the big decision, you might as well go through the advantages first.
1- Loopholes in Financing
First thing first: any residential building with up to four units meets the requirement for a conventional loan. To elaborate on this, you can acquire the same amount of loan to purchase a four-unit house as you can for a single-family home. This tactic has a tremendous benefit because the interest rate is lower once the federal government subsidizes these loans.
However, the minute you think of looking into a house with a plus one unit, you enter the world of commercial mortgages. Commercial loans are not the most suitable for anyone who is looking to gain maximum profits. There are several reasons behind this, including:
- The interest rates are higher
- The loan term is noticeably reduced
- Down payments are larger
- Not funded by the government, so you’re dependent on bank policies.
2- You can dwell in one unit
Quadplex, or any other house with less than four units, gives you the benefit of buying multiple units together with easy and cheap financing. For example, you can choose to rent three out and reside in the remaining unit with four existing divisions. In fact, choosing to live in your Quadplex can help you qualify for VA or FHA financing.
If you meet the FHA loan requirement, then you don’t have to worry about putting a considerable sum towards the down payment and can put as little as 3.5%. There is even better news for veterans because they have to put nothing down with the VA loan. These are some of the rare ways in which you can become a real estate investor without spending money.
However, make sure that your fourplex cash flows, even with low down payments. This reminder is vital because you can only generate profit if you’re making money while investing very little.
Another excellent tactic hidden in this advantage is that your tenants can pay your mortgages while you don’t have to worry about a thing. This way, you will be living free, plus keeping the equity in mind that you’re earning from paying down the mortgage, you’re gaining $200 over the top. You’ve got to agree; this deal is far better than free.
3- Expand Your Portfolio
There are some rules regarding residential mortgages of houses with a maximum of four units for rental properties. Your job is to find loopholes in these rules to maximize your chances of cheap financing to add a flair to your portfolio. Of course, there is a limit to which you can acquire these loans, but once you cross that limit, you will have to revert to commercial financing.
Even when it comes to buying a single-family home, you will have to get entangled in more complicated ways of financing if you cross the loan limit. This is why it is crucial to invest cleverly.
Think about it! If you invest in single-family homes, the maximum number of units you can get is 10 with a conventional loan system. However, if you invest in a quadplex, you can end up with 40 units.
The reason stated above is why, if you’re looking to build your portfolio by leveraging low-cost financing, then Quadplex is your best bet!
4- Not that Hard to Manage
This advantage is not huge considering there is not much to gain, but it is important to note that multi-plexes properties are cheaper to manage. For starters, you don’t have to invest large chunks of money in maintenance because you have four units under one roof, which saves you the trouble of driving to four different houses.
If you’re the property manager, it will be easier for you to maintain the house quality. Even though four families can reside in the house, there will always be one roof, base, front yard, and backyard. This benefit will allow you to keep track of a smaller footprint and maintain it without emptying your pocket.
Drawbacks of Owning a Quadplex
With all the benefits listed, there is no doubt that Quadplex is a good investment. However, nothing is perfect, and there are some downsides to buying a quadplex as well.
1- Uncertainty about tenants
Usually, people would much rather choose to live in a single-family house than duplexes, triplexes, or quadplexes. In a separate house, tenants have more privacy, which means they last longer. Quadplexes allows more privacy than a large apartment complex, but it is pretty understandable why most people would prefer single-family homes.
Now let’s say you’ve found suitable tenants who prefer to stay in your quadruplex; it is a whole other to ensure compatibility between them. When more than one family has to live under the same roof, it is essential that they respect each other’s privacy and needs. However, ensuring that no clashes occur in the future is not that easy.
Apart from that, fourplex houses are usually not found in relatively well-off neighborhoods. On the contrary, they are primarily situated in lower-income neighborhoods, where investing money is usually an excellent start to building wealth. However, many people prefer to have tenants willing to pay a higher rent and sign a lease for a slightly longer term.
2- Dwelling with your tenants
We have already talked about the many advantages of living in your Quadplex, but now let’s look into the disadvantages. First, it would help if you remembered that this way, you’ll be sharing the space with your tenants and living next door to them.
Some property owners might now hate the idea, but it may not be the best situation for some. For example, if you’re a person who hates conflict— it will be hard to live with your tenants because you’ll know what they’re doing round the clock with your property.
You may also reconsider if you are ready to always be in the landlord’s uniform because, let’s be honest, it can get taxing.
3- Hard to find
Quadplexes have many advantages, but it is not always easy to invest in them because there are not readily available. Many places have a scarcity of multi-unit houses, and it is mighty rare to find one for sale.
Mostly, quadplexes are available in lower-income areas, but investing in them may not be the best idea. The tenants in these areas expect low rents, which may not even meet your monthly threshold. Therefore, it is crucial to inspect the location and demographic before making any real estate investment.
Is Quadplex a smart investment?
After weighing all the pros and cons for you, it should be easier for you to deduce that quadplexes are an excellent investment option for many reasons:
- Quadplexes have plenty of rentable units.
- By residing in one of the four units and renting the rest, you can live for free and earn on top of that.
- Your mortgage payment is reduced considerably due to low-interest rates as they qualify for residential real estate rates.
- Your rental properties portfolio can be built faster by purchasing four units instead of one at a time.
- Managing the house becomes cheaper and more straightforward.
Renting vs. owning a fourplex
Today’s youth is stuck in a quandary of renting an apartment and owning. The truth is that there is no one answer to this question as they both have their own set of pros and cons. However, the good news with quadplexes is that you can do both.
The option to give a portion of your house on rent is relatively a new one. But, multi-unit homes allow you to become rent as well as live under the same roof in separate units. As already mentioned above, living in your Quadplex has generous benefits, so this dilemma of renting vs. owning maybe just another benefit in disguise.
After traversing through the good and the bad, we can safely deduce that buying a quadplex is a good investment for both real estate investors and residential buyers.
There is no doubt that you will have to run more background checks on the building, location, and ultimately the tenants than you have to on a single-family home. However, it will also guarantee a steady flow of income. Apart from that, being an owner of a quadplex can give you unique advantages, unlike other landlords.