Smaller multifamily investments — like a duplex, triplex or fourplex — are a great way to break into investment real estate.
In fact, I consider a fourplex investment the perfect balance between great profit margins and low risk.
- Properties with up to four units are classified as residential, not commercial properties, making the financing process less complicated
- The more doors you have, the less risk to your income. More on this later.
- A smaller property means upfront costs are lower
- You have multiple income sources if your property is fully rented
Royal Empire Realty specializes in this sweet spot of multifamily investment real estate. If this investment strategy sounds ideal for you, follow this guide to find your perfect property.
What is the best investment target: a duplex, triplex or fourplex?
While I usually recommend a fourplex investment, a smaller property might be a better fit for your goals.
First, let’s clarify the terminology in multifamily residential real estate.
A duplex is a single property with two separate housing units. Most duplexes are built with the homes side by side, sharing a single wall. However, a duplex also could be an upstairs and a downstairs unit.
The key is that the units are separate, with their own entrances and no shared inside living space. We are not talking about a single family home with a private wing that connects to the main living areas with an internal door. That is commonly called a mother-in-law suite.
What residents in a duplex likely share is a backyard, parking and potentially a garage or storage shed.
Similar to a duplex, a triplex is a single property with three separate housing units, usually side by side.
A fourplex, or a quadplex, consists of four housing units. These could be side by side. Or they could look like a mini apartment complex, with two downstairs units and two on the ground floor.
Comparing the options
Duplexes are the most common of the multifamily residential options, especially in South Florida. Triplex and fourplex investments are harder to find.
Duplexes tend to be the cheaper investment, given that they are typically smaller. However, that may not always be the case. A duplex with two three-bedroom units in an expensive neighborhood might actually compare in price to a fourplex with one-bedroom units in a different area.
However, of the three options, a fourplex investment offers the least amount of risk. With four units, you have more potential income sources. Losing one tenant means you lose only a fourth of your potential income.
If you lose a single tenant in a duplex investment, you have lost half your income. Or you stand to lose all of it, if you live in the other unit.
When determining the best investment target, consider your goals, your starting capital and the level of risk you are willing to take on.
Below is a quick outline of the advantages and disadvantages between a duplex and fourplex investment. A triplex investment property would fall somewhere between the other two options.
- Lowest investment buy-in
- Easiest to find
- Only two sources of income
- More risk of losing income between tenants
- Highest potential income
- Least amount of risk in tenant turnover
- Highest investment buy-in
- Harder to find
Finding your investment property
Once you have defined the size of your ideal investment property, consider your potential renters as you narrow down location options. Even if you don’t plan on living in the home, you want to create an ideal scenario for quality future tenants.
Determining the best community
You know that location is the most important factor as you chose your ideal duplex, triplex or fourplex investment. But where should you look?
Residential multifamily properties tend to be in areas with larger populations. While I cannot rule out finding a quaint duplex in a rural area, typically you are looking for a suburban community or a small city.
Think of places where land sells at a premium, but a backyard is still an obtainable amenity.
Here are some questions to ask to help evaluate the quality of the market:
- Is there a high demand for rental properties in this area?
- Is the population growing so that demand will continue?
- What are the current rental prices in this market?
- What is the job market like for your ideal renter? Would the local economy support rental prices that earn a solid return for investment?
Evaluating the neighborhood
Do not assume that multifamily residential properties are restricted to only certain types of neighborhoods. They can be found in quiet suburban neighborhoods and bustling city centers. As residential properties, they can be mixed among single-family homes or planted next to bigger housing complexes.
Because of this, it is important to consider the neighborhood of the potential investment. Take some time to research the local area. Would it attract your ideal renters?
Evaluating the quality of the investment
The final evaluation is the property itself. For most multifamily investors, the ideal property will be ready to accept new renters sooner rather than later.
To keep your investment as passive as possible, look for a newer or recently renovated duplex, triplex or fourplex with few needed repairs. Hire a good property inspector to help you evaluate the quality of the property before you close the purchase.
If you have a lot of experience with renovations, you might consider a property at a lower price point and spend part of your capital to improve the quality of the property.
However, this delays the time it takes to reap a return on your investment. Additionally, the larger the renovation, the greater your risk of encountering costly delays or spending more than you initially budgeted.
Research and planning at the beginning of the investment will go a long way to making your property profitable in the long run.
Consider South Florida for your multifamily investment
South Florida is where I grew up and currently do business. I would be remiss if I did not recommend my favorite community as an ideal location for multifamily investments.
The team at Royal Empire Realty is looking for investors ready to capitalize on this prime strategy.
Would it have been cheaper to invest in this booming market six months ago? Of course! However, the next best time is right now.
Avoid more regret six months from now. Invest in a great South Florida property today.
Our Royal Empire Realty community pages list all the duplex, triplex or fourplex investment properties in our favorite cities.
Find your perfect multifamily investment properties in:
Give us a call. We cannot wait to help you grow your Empire!