Do Fourplexes Make a Good Long-Term Rental Investment?
6 minute read
July 18, 2023


Let’s talk about fourplexes.

These real estate assets, comprising four separate living units within one building, offer a unique opportunity for portfolio diversification.

They sit in a sweet spot between single-family homes and larger multi-family properties, offering benefits from both ends of the spectrum.

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Fourplexes vs other real estate investments

As an investor, you have probably considered single-family homes, duplexes, and other multi-family properties.

What sets fourplexes apart? Fourplexes offer more units for potential rental income without the daunting management challenges associated with larger multi-family properties. They often fall under residential property guidelines, making financing easier to get than larger commercial properties.

Besides these advantages, fourplexes have a lower barrier to entry. The cost per unit is typically much lower than that of a single-family home. This makes fourplexes an attractive option for those just starting real estate investing. Plus, they provide lots of leeway for design and layout options. This allows you to customize the rental units according to your tastes and the demands of potential tenants.

Financial considerations of fourplexes

From a financial perspective, fourplexes have the potential to generate steady cash flow.

With four units at your disposal, you can continue earning rental income even if one is vacant. Although the acquisition costs for fourplexes might be higher than those for single-family homes or duplexes, the potential return on investment (ROI) can offset these initial expenses.

Tax deductions and property appreciation can also increase financial benefits.

Demand and occupancy rates for fourplexes

Fourplexes appeal to a wide demographic. This includes young professionals to small families, enhancing rental demand.

High occupancy rates are often more achievable because of the lower rental costs compared to single-family homes in the same area.

However, be sure to study local rental markets before investing. This means assessing the typical rent for similar properties, vacancy rates, and the local economy.

Maintenance and management of fourplex properties

Owning a fourplex entails maintenance and management responsibilities. While these tasks are more significant than for a single-family property, they’re often less intensive than a larger multi-family building.

Consider hiring a property management company if these tasks become too burdensome. They can help you keep up with maintenance, attract tenants, and collect rent.

Managing a fourplex also requires effective cash flow management. With multiple tenants, it’s essential to have a strategy to manage expenses, income, and cash flow. This can include budgeting for repairs and maintenance, staying on top of rental payments, and setting aside funds for unforeseen expenses.

By maintaining a solid financial plan, you can ensure the long-term profitability of your fourplex investment.

Tax benefits of owning a fourplex

You can claim deductions for mortgage interest, property taxes, and maintenance costs. Plus, you may take advantage of depreciation, reducing your taxable income further. This is especially beneficial for long-term fourplex owners. Consult a tax professional to understand your tax advantages.

Risks and challenges of investing in fourplexes

Investing in fourplexes is not without risks. Market fluctuations can affect rental income and property value. Higher tenant turnover can increase costs and time spent on unit upkeep. Thorough due diligence is essential before investing.

To mitigate risks, learn about the local rental market and be aware of landlord-tenant laws. Researching and analyzing rental trends, vacancy rates, and economic indicators in the area can provide valuable insights into your investment’s potential profitability and stability.

Staying informed about any regulations or restrictions that may affect your investment and property management will help avoid headaches.

Strategies to increase the cash flow of a fourplex investment

Investing in a fourplex can be an excellent way to generate rental income and diversify your portfolio. However, understand that there are certain strategies you can employ to increase the cash flow of your fourplex investment.

1. Increase rent

One of the most direct ways to increase cash flow is to raise the rent. However, you must ensure the new rates compete with similar properties in the local market. This strategy might also depend on local laws and regulations governing rent increases.

2. Improve the property

Strategic improvements can justify a higher rent. This could include updating kitchens or bathrooms, improving landscaping, or adding amenities like air conditioning or dishwashers. Be sure to analyze the potential return on investment for any improvements to ensure they’ll increase your cash flow. You also may need to pay for new permits depending on the scope of the work. When partnering with Park Place Finance, you can keep rehab loans in-house, just inquire with your Account Executive or learn more here.

3. Reduce vacancies

A vacant unit is a lost opportunity for income. Address maintenance issues quickly to reduce vacancies. Make that you’re adequately advertising so that potential tenants can find you.

3. Reduce turnover

Keeping your tenants longer helps avoid the costs of finding new ones. Make sure tenants are content with the unit and your management, be timely with maintenance, and keep the property in good condition.

4. Add revenue streams

Consider adding additional revenue streams. Options could be coin-operated laundry facilities, vending machines, or storage units. You could also charge for premium parking spots if applicable.

5. Bill back utilities

If you currently cover utilities, you could consider switching to a system where tenants pay for their usage. However, this can be a complex change and might not be possible or beneficial in all situations.

6. Refinance mortgage

If market conditions are favorable, refinancing your mortgage could lower your monthly payments and increase your cash flow. However, refinancing comes with costs, so you need to ensure the savings outweigh the costs. Your Park Place Finance Account Executive can also assist you with refinancing your mortgage.

7. Look into property value

You can appeal your property tax assessment to lower your tax bill if you think your property is overvalued. This is potentially risky in the rare case that the property assesses higher than you’d expect. But if you think you’re being billed too much, go to the location’s town hall and request the tax card for the property. If necessary, schedule a walkthrough with an assessor. Keep in mind that if you do go through an official appeal, you’ll likely need to hire legal help. Make sure to weight the cost versus the benefit of this strategy. 

Remember, the effectiveness of these strategies can depend on your specific property and local market conditions. It can be helpful to work with a local real estate professional to understand the strategies that will most likely be successful for your property.

Diversify your portfolio with a fourplex rental

Fourplexes can make an excellent long-term rental investment, provided you understand the financial implications, market trends, and potential risks.

With multiple sources of rental income, potential tax benefits, and a balance between management responsibilities and ROI, they represent an attractive option for portfolio diversification.

If you’re ready to invest, Park Place Finance can offer you market-leading rates and loan terms to finance your purchase. Call us today at (866) 407-1599.

Get started with Park Place Finance.
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