What Is a Fourplex?
A fourplex gets its name because it’s basically the equivalent of two duplexes. So, instead of two units, there are four. Everything else is similar to a duplex. The units are completely independent of each other, meaning each tenant has their own access door, kitchen, bathroom, etc., but they do share walls.
One landlord owns the entire complex, too. While there are buildings that entail four separate units, if those units are all owned by their respective tenants, the property would not be considered a fourplex.
3 Reasons Your Next Property Acquisition Should Be a Fourplex
It should go without saying that a lot of consideration should be put into purchasing a new property.
That said, if you’re ready to expand your portfolio, there are three reasons you should consider starting your search with fourplexes.
1. Fourplexes Are a Great Entry Point into Multifamily Properties
While owning a multifamily property comes with a number of great advantages, owning something as large as an apartment complex also comes with a lot of challenges.
First and foremost, there’s the actual price tag. The larger the property, the more it will cost, but the more regulations you’ll have to contend with, as well.
Second, you’ll most likely need at least one property manager to watch over your investment, respond to tenants’ requests, and schedule maintenance work when necessary.
While an apartment may someday make sense for your portfolio, a fourplex provides the perfect entry point into multifamily units. It’s enough units that you’ll get a sense for the work involved but also see healthy returns for your troubles.
2. You Can Live in One Unit While Three Tenants Handle the Bills
One of the best parts about owning a multifamily property is that you can live in it and have your tenant(s) handle the monthly costs.
This kind of setup is extremely common among duplex owners. Even if they don’t profit from the arrangement, the owner does get to live “rent-free.”
Of course, the setup is a lot better with a fourplex. You can live in one unit while three tenants inhabit the others. Their rent should be more than enough to cover your monthly mortgage payments and include a nice profit margin.
Better still, you’re not just living rent-free. Those tenants are also helping you build a lot of equity, which you can use later for a cash-out refinance to then add more homes to your portfolio.
3. Four Units Provide a Great Hedge Against Vacancy
Nothing destroys a rental property’s potential like vacancy. Without tenets, there’s no rent being paid, rendering the property nothing more than an expensive liability.
Fourplex owners don’t have to worry about this scary problem quite as much, though. They can afford to have a vacancy or two because that still leaves multiple tenants to handle their monthly bills.
Their cash flow remains safe. Say, for example, their mortgage every month is $2,000. If they can charge their tenants $1,200 every month, then they only need two tenants to maintain positive cash flow.
The Case for Nonbank Fourplex Financing
Ever since the Great Recession, rental property investors have been turning to nonbank lenders more and more instead of traditional financial institutions.
In fact, by 2017, nonbank lenders had become so popular that The Washington Post published an article titled, “The mortgage market is now dominated by nonbank lenders.”
The reasons for the decline in traditional lenders are numerous and, of course, many have nothing to do with people who want to expand their rental portfolios.
However, there are definitely some advantages that nontraditional lenders offer, which their traditional competitors cannot.
For example, these lenders don’t have as much bureaucratic red tape to contend with when someone applies for a loan. There’s no job check, which makes it perfect for people who are self-employed. These lenders aren’t concerned with people’s tax returns, either, so there’s no need to go searching for old W-2s or 4506-Ts.
Most accept applications through their websites and are able to respond about approvals much quicker than banks and other traditional lenders can. All borrowers need to do is fill out an application and submit their credit report. While a property-based lender will want to review the home in question to make sure it is viable as a source of rent, that’s about it.
Furthermore, many nontraditional lenders have no upper limit on how many mortgages they’ll approve for a single client. Compare that to Fannie Mae’s rules, which only allows for 10 mortgages per borrower. You can even apply for a blanket loan with nontraditional lenders, one mortgage that can cover countless properties.
Does Your Portfolio Need Fourplex Financing?
If you’re excited about the prospect of owning a fourplex and working with a nontraditional lender to secure the fourplex financing you need to purchase it, our company would love to help.
At Rental Home Financing, we’re proud of the reputation we’ve built. Since 2014, our firm has been responsible for almost $500,000,000 in mortgages for a large assortment of experienced investors who turned to us to help grow their rental property incomes. Often, this has involved creating loans for fourplexes.
Our property financing services include options for purchasing, refinancing, and cash-out financing. Whether you need a single loan or financing for 1,000 properties, we can offer you anywhere between $75,000 to $1.5 million.
So, if you’re ready to add a fourplex to your portfolio, we’d love to hear from you. Please contact us today and let’s discuss what kind of financing will work best for your unique needs.