There are now a lot of real estate investment opportunities available that can be used to make maximum returns and secure the future.
But have you ever heard of house hacking?
Well, it is a common strategy using which you will be able to get rid of your housing expenses and make way for better financial freedom.
The trick in multifamily investing is to buy a multi-family property as the primary residence and then rent out the other units to generate income. When you get the deal right, you can cover the mortgage and the other expenses associated with the property.
In simple words, it will be your launchpad for becoming a commercial real estate investor and making a profit for a longer time. This clearly shows investment in triplex, duplex, and fourplex can be a great way of making money. But out of all fourplex is the one you must choose.
There are multiple reasons why the fourplex will be the winning choice here. Read the guide ahead to understand things better.
Understanding fourplex investment
If described in simple words, fourplex is a type of multi-family property that has just four units in it. The plan features a separate entrance and living spaces for all. However, all units here will have at least one shared wall. They are designed to house at least four separate families comfortably.
Generally, the investors choose to prefer a fourplex instead of a single-family home. If you, too, wish to save money on housing, then investment here is the best. It is already common in the urban areas where the affordable housing options are quite limited.
However, fourplex can be out of your budget range. But you must not get discouraged. Read the guide ahead to understand things better. You will know the right way of fourplex investment.
Benefits of Fourplex Investment
If you are interested in income-generating property but don’t think you have the required finances, then there is nothing to worry about. The FHA loan is here to help. With this, you will have low down payment options and favorable terms.
Thus, you will be able to make the largest possible investment ever. Besides this, here are the benefits associated with a fourplex.
- Generate monthly income
Homeowners will never be able to earn any sort of income from their primary residence. Even if they were able to move out and turn their home into a rental property, the likelihood would not be much. It will take a lot of time to generate profit from it.
In contrast, if you choose to buy a fourplex, you will start generating rental income right from the very moment. Let’s consider that you live in one of the units. Now, the remaining three units can be given out for rental purposes.
Experienced income property investors will always have a number crunch before they make the purchase. They will make sure that the rental income generated from the right rental property investment will cover all the expenses, including repairs, mortgage, maintenance, etc.
Keep in mind you will not be able to earn a profit right from the very start. But at least you will be able to cover the housing cost and the other expenses.
- Low price
Fourplex, duplex, condos, etc, are all a part of multi-family property. A major difference between these types is whether or not it can be financed with a residential or a commercial loan. Any building that has five or more units will require a commercial real estate loan.
For this, you will have to put down a down payment, which will be a minimum for any person. Besides this will be the monthly payments and the interest rate that can fluctuate over the course of time. Any owner-occupied property under five units can easily qualify for a conventional loan.
With this, you can get a 30-year fixed-rate mortgage while the down payment here can be as low as 3.5%. This makes it absolutely easy to acquire financing for the project.
If you think of this investment this way, buying a fourplex will give you the biggest bang on the budget. First, you will be able to maximize the number of units without having to take a commercial loan.
Further, the rent price ratio will be the best. So you will be able to enjoy maximum benefits.
- Tax benefits
As an investor in the industry, no doubt you will love the tax benefits. The best part is you will be happy to hear that the tax reduction potential will be maximum when you choose to invest in a fourplex.
The tax benefits will include property tax right off, property depreciation, and a reduction from any upgrades or maintenance. These are all on top of the residential property tax breaks.
- Easy management
When investing in such a huge property, a major concern happens to be the management of the rental portfolio. However, when you have just four units, the management process will be absolutely easy.
Instead of managing the tenant across multiple properties in different locations, you can manage them all right at one location. However, if you think it is not possible for you to manage the property on your own, then you always have the option to hire a professional.
- Best economies of scale
A major advantage of the fourplex is that it will give you the best economy of scale out of any other residential property. First, the expenses will all be spread across four units instead of just one or two.
Thus, the premium will only increase by a margin for each of the units while also reducing the overall cost per unit.
You will be more protected in case of any vacancy. Even when you have trouble filling an unexpected vacancy, you will still be earning money from the other units that will help cover your expenses.
Lastly, the returns on the investment projects will be multiplied over the years. The returns for the fourplex is about 60% a year.
How to find the right fourplex?
Now that you are aware of the benefits, you must know how to invest in the fourplex properties so that you can complete the deal successfully and make maximum profit from it. The tips here will be helpful for you to understand things better.
- Learn about the local housing market
A major reason to perform market research is to find the ideal neighborhood and get the best for your investment. Herein, a good location is the key factor that will help make your investment property successful.
Besides, there are various other factors that include the job market, population, transportation, school, and others. All of these are the indicators of the desirability of a specific neighborhood.
- Check the MLS
The next thing to do is search for the listings. You can also do this by partnering up with licensed real estate agents. Alternatively, you can make use of market properties and public listing websites to find the best deal.
- Understand the real estate investment metrics
Take your time to get comfortable using various real estate investment formulas. This will help you find the profitability of the property. Investors who rely on the decisions of the gut will rarely succeed. You need to understand the metrics of the industry and know how to use them correctly.
When you are ready to make an investment in the property, using the formulas to identify the potential profit growth and other aspects of the property is the key to making the most from it and getting better returns.
- Know about the loan options
Once you have found the right type of income-producing property, you need to talk to a lender to secure an investment. Unless you can pay all in cash, you will require some sort of funding to get the property deal closed. There are a lot of conventional home loan options.
But if you wish to get the best, you can consider other loans if you qualify. The options here include a first-time home buyer loan or the VA loan. Besides, you can even skip the commercial lending options if you can obtain a personal loan from relative support or any other assistance.
Once done with it all, you can close the deal and start your journey as a real estate investor. But remember the decision here is quite important. So, you must understand the industry well before taking the big step.
You need to strike a balance between management and income so that you are able to get maximum returns from the property.
Conclusion
Investment in fourplex might seem scary, but it can be quite advantageous. If you are worried about it, then you can consider getting professional support from Private Capital Investors. They are the best to acquire the financing for the project.
They will help you know the top options and choose the best. No matter the budget requirement or finance needs, the professional commercial real estate hard money lenders will support you throughout the process and help you make the most of it.
