Key takeout
With duplexes, triplexes, and fourplexes, you live in one unit while renting other units. They offer strong rental income potential, but require higher upfront costs and more management. Your choices depend on your budget, goals, and your willingness to take on the responsibility of the landlord.
Are you thinking about buying a duplex, a triplex, or a fourplex? These multifamily real estate have attracted attention as a way to combine homeownership with investment potential. Whether you’re looking for a multi-family home in New York or a quiet double in Boise, owning multi-family property can provide rental income, build equity and create long-term wealth.
In this Redfin article, we will cover the advantages and disadvantages of double, tric, and four plexes, as well as important factors to consider before purchasing.
What is a duplex, triplex, or fourplex?
Duplex, Triplex, and Fourplex are all multifamily homes, each consisting of two, three or four units. These facilities allow multiple households to live in the same building, each with their own unique living space. Here’s a quick breakdown of each:
Duplex: A home with two separate units, often sharing a common wall. Ideal for those who want to live in one unit. Triplex: A 3-unit home. It’s similar to a duplex, but with additional units, which increases the chances of rental income, but also offers more management. fourplex: A 4-unit home. This gives you the largest option before apartment building classification. It is attractive for investors looking for higher cash flow.
The advantages of buying multi-family real estate
1. Possibility of rental income
One of the most important benefits of buying a double, triplex, or fourplex is the potential for rental income. Renting extra units can help you generate income that will help you cover mortgage payments and make your property easier. For example, buying a duplex and renting a second unit can cover most, if not all, of your home loans, and significantly reduce your living costs.
2. Living room flexibility (house hacking)
Living in one unit while renting other units is a great way to start a house hack. This strategy allows you to offset the cost of living by using your rental income to cover some or all of your mortgage. For example, Triplex allows you to live in one unit and rent two other people, reducing your living costs significantly or generating extra savings.
By using rental income to reduce your living costs, you can live in real estate at a much lower cost than traditional detached homes.
3. Tax benefits
Owning a multi-family home has tax benefits. For example, you can deduct costs related to repairs, property management, utilities, and even mortgage interest. These deductions will help you reduce your overall taxable income and make a great way to take advantage of tax cuts on multifamily real estate.
Furthermore, the advantages of depreciation are specific to multi-family characteristics. Over time, the value of the building (excluding the land) can be depreciated. This allows you to amortize some of the property’s value each year, further reducing your taxable income.
4. Long-term investment opportunities
Multi-family real estate offers excellent long-term investment opportunities. When you rent a unit, you build equity through growth in property values. Over time, as the value of your property increases, so does your fairness, giving you a big return on investment potential if you decide to sell.
Renting a unit provides a stable income stream and the long-term stability of the rental allows you to build wealth over time. This is particularly useful in assessing a market where rental units are in high demand and rental rates continue to rise.
Cons of buying multi-family property
1. Higher advance costs
Buying multi-family property typically involves higher advance costs compared to single-family homes. Down payments for duplexes, triplexes, or four-plexes are usually large, often ranging from 15% to 25%, depending on the property and funding. In addition to down payments, the cost of financing for these properties can be high due to the high risk of involvement with lenders. This means that when purchasing multi-family property, you may face increased interest rates or more stringent lending requirements.
2. Property Management Challenges
Managing multiple units presents a variety of challenges, especially if you are new to real estate. Addressing tenants, handling maintenance issues, and dealing with vacant seats can take a considerable amount of time and effort. If you are renting multiple units, you should always be aware of what you are dealing with lease agreements, rental collections, and tenant concerns.
Many buyers choose to hire a real estate manager to handle these liabilities. This makes workload easier, but also adds additional costs to your budget. Property management fees usually range from 8% to 12% of rental income, allowing you to eat up profits.
3. Zoning and Local Regulations
Multi-family real estate is subject to stricter zoning laws and local regulations than single-family homes. Depending on where you purchase, these properties may require specific zoning approvals, inspections, and permits.
You must ensure that your property complies with local building codes and regulations. This may include additional costs for an update or repair. Failure to meet these requirements can result in delayed fines and occupancy, making it important to understand local laws before committing to multi-family homes.
4.Low privacy
One of the biggest drawbacks of owning a duplex, triplex, or 4Plex is its reduced privacy. Living near a tenant can have a quiet impact with your personal space with potential noise, shared entrances, or tenant disputes that affect your comfort. If you value privacy and a peaceful living environment, this is an important factor to consider when deciding whether multi-family property is right for you.
Duplex vs Triplex or Foulplex: Which is correct for you?
The type of multifamily property you choose will depend on your goals, budget, and how much you want to put into practice. More units offer higher income potential, but also have greater responsibility for tenants, repairs and vacant seats.
This is the breakdown of those who need to consider each option.
Duplex: Perfect for first-time buyers or those looking for manageable property, duplexes can help you live in one unit and generate income, cover mortgages and take a strong first step into real estate. Triplex: Perfect for buyers who are more responsible and ready to generate higher rental income. Triplex offers more income potential than Duplex while helping to diversify your real estate portfolio, but also requires additional management and maintenance. FORPLEX: Perfect for investors looking to expand their rental income and offer the best income potential, but requires larger upfront investments and practical management of multiple tenants.
Important factors to consider before purchasing multi-family properties
Location and rental demand: Location has a significant impact on the potential rental income. Facilities close to desirable neighborhoods and public transport, schools, shopping and other amenities can more easily attract tenants and order higher rents. We investigate local rental demand, vacancy rates and long-term growth outlook to ensure stable income. Maintenance and Repair: Owning multiple units increases maintenance and responsibility. Regular maintenance, repairs and unexpected issues can be summed up, so you can budget and plan your management accordingly. Proactive care helps maintain tenant satisfaction and protect the value of the property. Asset Value and Appreciation: Multi-family real estate can increase in value over time, but appreciation depends on factors such as location, property status, and local market trends. Understand what drives your area’s growth (such as neighborhood development and population growth) and choose the property that generates rental income and long-term value.
4. Funding Options: FHA loans may be available for up to four units of properties if you live in one of them. Traditional loans typically require higher down payments (15%-25%) and lenders may charge slightly higher interest rates as multifamily homes are considered higher risk.
FAQs regarding purchasing duplex, triplex, or fourplex
1. Can I live in one unit and rent another unit?
Yes, most multi-family buyers live in one unit, renting the rest to offset costs.
2. How are townhouses different from double or triple?
Townhouses are usually single-family homes with shared walls and are not designed primarily for multiple rental units, such as duplexes and triplexes.
3. What is the difference between a duplex and a fourplex?
The Duplex has two units, while the Fourplex has four units, providing more rental income, but requires more management.
4. Is buying a Triplex a good investment?
Yes, triplexes can generate higher rental income than doubles, while manageable for practical investors.
5. What is the difference between double and two flats?
Two-flats are similar to double, but often refer to a specific layout of one unit per floor, which is typical in a particular area.
6. How much money can you expect from a duplex, triplex, or fourplex?
Rental income varies depending on location, unit size and demand, but a large number of units generally means a high potential income.
7. Do multi-family homes need real estate management?
Although not required, hiring a property manager can help alleviate your workload, especially for triplexes and foreplexes.
8. How does vacancy affect multi-family investment?
Location and tenant demand are important considerations, as vacancy reduces income and increases risk.
