When buying a residential multifamily house to live in there are obviously a couple of different choices (duplexes, triplexes, and fourplexes). They all have different factors that might make one more beneficial than the other. As an example: cash flow, financing, live in benefits, more demand for a duplex for one over another, fewer fourplexes on the market, lower vacancy rate with fourplex, and much more.
House Hacking Duplex Vs. House Hacking Fourplex
A duplex typically has two single-family units built together, either beside each other or one on top of the other. Fourplexes, on the other hand, has four separate single-family units, all built together in a structure. Either option each unit has all the amenities and utilities of a complete single-family home. Overall there is more risk with fourplexes since there are more tenants, more furnaces, hot water heaters, more doors and are more expensive. Some might say more risk more reward, which they might be right. However, as always make sure you run your numbers, weigh out the expenses to know if it is the right investment for you.
Since the investment won’t be just an investment, but a house for you to live in for a couple years there are more factors come into play. Some of the factors are the location, rents, condition and more of the buildings can be more important than the number of units. If all is being equal in terms of these items you’re better off having 4 or more units all with increasing rents than a 2 unit if you are okay with more work and have the reserves in place for repairs.
Duplex or Fourplex as First Property to Live In and Invest
Owning a house is very likely the most expensive endeavor in an average family’s budget. The bills you’ll pay doesn’t stop at the mortgage alone. You’ll typically find yourself dealing with property tax, utilities, insurance, landscaping, upgrading, and much more expenses.
However, you don’t have to bear all the costs from your pocket. In fact, with a good strategy, you can live for free in an owner-occupied multi-family housing unit and still have some income after paying your mortgage. This is what house hacking is all about — owning an investment property, using a part of it for a primary residence, and renting out the rest.
No matter what type of property investment you are trying to attain just look for the best deal that fits your criteria. Four unit multi-families usually work out better financially but the inventory for duplexes are so much greater. If you find a great deal when the time is right, make the move. It’s unlikely you’ll find the perfect situation. Look at the difference in the per-unit cost to start. A duplex that costs $350,000 will never break even with only $2,200 gross rent total or 1,100 per unit.
In terms of vacancy risk 1 unit vacant is 25% Vacancy (or 33.33% when you live in the property) in 4 plex. Then when compared to a duplex 1 unit vacant is a 50% vacancy in a duplex (or 100% when you are living in the property and the only other unit is not being rented out). The turnover is likely to be higher in the fourplex and the appreciation potential on the duplex is higher because of the area. As a purely investment play a four unit might be the safer bet to avoid risk from profitability.
Duplex or Fourplex Investment
Both beginners and experienced investors have found that one of the best ways to boost cash flow and grow your property portfolio faster is by investing in a multi-family home. Unlike fourplexes and triplexes, duplexes have higher vacancy rates. You can make decent money from house hacking a duplex, but you can rake in more revenues if you were to invest in a fourplex home. Duplexes might have higher vacancy rates however a four unit has a higher turnover rate since there are more tenants to manage. Therefore, with duplexes you have higher odds of getting one hundred percent of the rent for each year.
With higher turnover in a fourplex it gives you an opportunity to benefit more from rent increases over time, and you own a commodity that is less common than a duplex.
More units means more fixes to keep it updated or modern to get top rent for the market. The remodeling of a 4-unit typically would be more work if all units are equal in quality. This could also mean more of a return than a duplex in value add remodeling increases.
Furthermore in regard to tenant’s a 4 plex you have 4 sets of appliances to maintain and could result in 4 chances of potentially poor quality tenants not reporting leaks. The potential hypothetical leak could start dripping into other units causing more damage. Also, Fourplexes have twice the chance that one tenant is loud and making a lot of noise disrupting the other units or residents that live on the premises. Overall 4-units definitely have some more work cut out of for you. However, all of it can be outsourced with a property management company. In general depending on the area with fourplexes you are running the risk of lower quality tenants as opposed to the high quality tenants that a nice duplex will bring with a lower cash flow.
Either option of a fourplex or a duplex it is nice to have only 1 roof and better cash flow.
Duplex or Fourplex For Sale
In the real estate industry today (especially in the US), there seems to be an increasing demand for multi-family houses, such as duplexes, triplexes, and fourplexes.When buyers are looking at buying a residential multifamily for sale they always wonder what is better, duplexes or fourplexes. Duplexes account for the most common options on the market. Also, another positive four unit multifamily offers is the low supply, which results in high demand. There are much less four units on the market for sale typically and there a lot investors that will pay well above the asking price simply for the hype of owning a four unit and in most cases overpay for long term benefits.
Live-In Residential Multifamily Financing
As with every other real estate investment plan, the first major milestone you have to take care of is raising the down payment for your mortgage. You can either do this by paying from private savings or combining money from your pocket with a housing loan (an example is the FHA loans or a conventional loan, if you don’t qualify for an FHA loan). The ideal mortgage should, however, have a low down payment, low monthly payment, and interest rate, and should be a long term loan. Of course, all of this depends on your goals of cashflow and how aggressive you want to be for acquiring properties. Typically, low downpayment are the more aggressive investors who are trying to obtain as many properties as possible.
Multifamilies in general have more finance options and a fourplex might get you a lower interest rate in comparison to a duplex simply from more cashflow coming in that gets taken into the calculation.
Buying a duplex or fourplex and live in one unit while renting out the others could mean a standard loan with 5% down payment on a multi family property or a 20% down. Additionally, you can use FHA, VA or conventional up to 4 units. Residential multifamily financing has more options. With FHA loan you can do a 3.5% down. As always make sure the numbers work with cafhflow and reserves – most importantly then it works for your ideal live in property situation.
Benefits of House Hacking Duplex
A duplex can be hard to find, especially in the right place. But if you do find one, here are some advantages of house hacking your duplex. In general, duplexes are ideal if you think you can’t handle too many tenants at a time. Some may say, they’re more in demand because many families prefer to deal with fewer co-tenants and the type of property are more suited for multigenerational living.
Either option of house hacking allows yourself to save a substantial amount of money with rental income and is the real benefit for any option.
Benefits of House Hacking Fourplex
There are fewer fourplexes on the market and lower vacancy rates for fourplexes. However, the benefits are pretty much the same as those of other “plexes”. One significant benefit of house hacking fourplex is the opportunity to learn how to be a landlord while also making more money. Fourplexes offer more challenges that will give you the grit to grow at scale. For house hacking fourplexes, the listing prices for the houses are usually higher making it a higher barrier of entry. However, in terms of profits, you can generate more revenue from house hacking your fourplex.
If a fourplex is fully rented all year round generally speaking fourplexes will generate higher cash flow since there are more units and more income to be made (everything is equal in comparison of the two comparable options).
In Conclusion
It will boil down to your personal preference. Calculate and compare the relative return on your cash invested. Would you prefer to have more cash flow but more involvement or lower cash flow with less involvement? Whether you choose to start your house hacking enterprise with a duplex or a fourplex, it’s important to have your finances planned out, study the market, and make time for the process. It may all seem like passive income, but it’s actually real estate entrepreneurship and is a lot of upfront work or continuous work
