What is a Quadplex? Is It a Good or Bad Idea to Buy One?

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A quadplex is a type of residential real estate that is relatively easy to finance and offers the opportunity to collect rental income. We’ll cover what a quadplex is, how the purchase and financing process works, and whether it’s a good or bad idea to buy one.

What is a Quadplex?

A quadplex is a type of residential property that has four separate residential units. You may also see or hear quadplexes referred to as quads, 4-plexes, fourplexes, or 4-unit properties.

Quadplexes are most commonly constructed as four side-by-side townhome-style units or in a stacked configuration with two units downstairs and two units upstairs.

These types of properties are typically purchased for investment purposes. In other words, the buyer acquires them with the goal of renting out the units.

Quadplexes can also be used to house extended family members under one roof, but in separate adjoining residences. A close family member of mine did this and it worked out well for them.

A quadplex can be a great investment property because the rental income is diversified among four tenants. If one tenant moves out, you still have three other tenants supporting the expenses of the building.

If also has the advantage of being residential real estate (as opposed to commercial, which is five units and larger), which means you can finance a quadplex using a regular bank mortgage.

One disadvantage of quadplexes is that you have four families living close together, which can lead to conflicts and complaints if they don’t get along. You may need to manage a quadplex a little more closely than a single-family rental property.

How To Buy a Quadplex

Again, quadplexes are considered residential real estate, so the purchase process works the same as purchasing a regular house.

They’re also valued and priced using the same method as regular houses. In other words, quadplexes are valued based on “comps”, which are recent closed sales of similar buildings in the area.

If you’d like to purchase a quadplex, I recommend working with an investor-friendly real estate agent to find a suitable property in your price range that generates adequate cash flow. The needs and concerns of homebuyers and investors are very different, so you want to make sure you work with an experienced agent who understands real estate investing and owns rentals themselves.

How to analyze and estimate potential cash flow is beyond the scope of this article, but there are plenty of great resources available online. However, I’ll cover some tips in a moment that are based on my own personal experiences of owning a quadplex.

If you plan to finance the purchase, you’ll want to get prequalified with a mortgage lender or bank before you start making offers. Sellers typically want assurance that you have a good chance of getting the loan once they accept your offer.

If you plan to purchase with cash, you obviously don’t need to worry about prequalifying with a lender.

Whether you’re financing or purchasing with cash, make sure to get the building professionally inspected. You’ll also want to purchase owners title insurance to protect yourself against the risk of future claims against the title of the property. A good real estate agent can guide you through this part of the process.

Once your offer is accepted, you’ll need to provide your lender with the necessary paperwork to lock your interest rate and begin underwriting and processing your loan file. Your lender will let you know what they need.

Once your loan file is approved, you’ll attend closing to sign the final paperwork, provide your down payment and get the keys to your newly-purchased apartment building.

Down Payment Requirements

How much of a down payment you’ll need depends on the type of financing you plan to use and whether or not you plan to live in the property.

Conventional Financing

If you’re purchasing the quadplex to live in, then your minimum down payment could be as little as 3% of the purchase price for conventional financing. If you purchase with less than 20% down, you’ll have private mortgage insurance on the loan until you pay the balance down to 80% loan-to-value.

If you’re purchasing the quadplex as a rental using conventional financing, you’ll need at least a 25% down payment. Lenders consider rentals riskier than owner-occupied homes, so they require a larger down payment.

FHA Financing

The minimum down payment for FHA financing is 3.5% of the purchase price, but you’ll be required to live in the property. Non-owner occupied properties are not eligible for FHA purchase financing.

VA Financing

The minimum down payment for a VA loan is 0% of the purchase price, but you’ll be required to live in the property. Non-owner occupied properties are not eligible for VA purchase financing.

Reserve Requirements

If you’re buying a quadplex, you’ll typically need to document at least some cash reserves in the bank, whether you plan to live in the building or not. How much you’ll need to document depends on whether you’re purchasing with conventional, FHA, or VA financing.

Remember, FHA and VA financing requires that you live in the property. There is no non-owner occupied purchase financing available through FHA or VA.

Acceptable reserves include some combination of checking, savings, money market accounts, retirement assets, and fully-vested life insurance policies that have a cash value.

You’ll need to document your reserves using official account statements that cover at least the last sixty days.

Conventional Financing

Conventional Fannie Mae guidelines require you to have at least six months of mortgage payments (including property taxes and homeowner’s insurance) on hand as reserves, whether you intend to live in the building or not.

If you have other rental properties, you’ll need to document reserves for them as well. How much you’ll need to document varies from one borrower to the next, but your lender will be able to confirm the amount.

FHA Financing

FHA requires you to have at least three months of mortgage payments (including property taxes and homeowner’s insurance) on hand as reserves.

Again, there is no non-owner occupied financing available for FHA purchase loans. This is applicable only if you plan to live in the quadplex.

VA Financing

VA financing typically has no reserve requirements, but some lenders may have their own guideline enhancements (called “overlays”) that may require reserves.

Again, there is no non-owner occupied financing available for VA purchase loans. This is applicable only if you plan to live in the building.

Using Rental Income to Qualify

It’s possible to use the rental income from the building you’re buying to qualify for the home loan, but there are some requirements you need to know about.

If you have no history of being a landlord, you may be able to use any existing leases in the building as qualifying income as long as they’re being transferred to you when you take ownership.

If you have a history of being a landlord, you will typically document rental income from any other rentals you own with tax returns. If you need income from the quadplex you’re purchasing to qualify, you obviously won’t be able to document it with tax returns. In that case, you’ll need to use lease agreements.

Some Additional Tips

I owned a quadplex for 13 years and learned some valuable lessons. Here are a few additional things you may want to keep in mind as you look for a suitable building to purchase:

  1. Calculate your estimated cashflow realistically. It can be tempting to assume the rosiest possible picture, but that will come back to bite you. Make sure you project realistic expenses for maintenance, management, debt service, insurance, marketing costs, etc., as you calculate your estimated cashflow. I would also assume a 10% to 15% vacancy factor into your figures. If you have at least $100 left over for each unit once you’ve figured in realistic expenses, you may have a good cash flowing building.
  2. Apartments get a lot of wear and tear. You’ll probably be fixing things fairly often if the building is at least five years old. If the building is 20 or 30 years old (or more), you’ll be fixing things on a regular basis. Make sure you have enough cashflow and reserves to account for this. Don’t forget that each unit has it own set of appliances, including water heaters, refrigerators (depending on the area), dishwashers, furnaces, A/C units, etc. A/C units often have both inside and outside units. Make sure you have enough cash reserves to repair and replace appliances for four units.
  3. Cheaper is not always better. If you’re struggling to get a tenant, resist the urge to drop your rent below market rent as a enticement to get a tenant. If you advertise a cheap rent, prospective tenants may assume there’s something wrong with the building or the local area and choose not to rent from you.
  4. Always charge a deposit. How much the deposit should be depends on your local market. However, do not waive or discount the deposit under any circumstances. Consider yourself warned :).
  5. Turnover destroys cash flow. Try to rent to people who will stay for at least several years. It can get expensive to refresh and turn over your unit every year.

One last thing: I strongly urge you not to purchase a quadplex unless you’re truly able to handle the work and maintenance costs associated with owning such a building. If you’re tight on cash, it will be difficult to maintain the building well enough to attract the kinds of tenants to whom you want to rent. If you aren’t financially able to maintain the building, it will likely start a downward spiral that could eventually end in financial disaster.

What is the meaning of quadplex?

A quadplex is a type of residential property that has four separate residential units. You may also see or hear quadplexes referred to as quads, 4-plexes, fourplexes, or 4-unit properties.

What is a quadruplex house?

A quadplex is a type of residential property that has four separate residential units. You may also see or hear quadplexes referred to as quads, 4-plexes, fourplexes, or 4-unit properties.

Is it a good idea to buy a quadplex?

Yes, it can be a great idea to buy a quadplex. There are four units, which means your cash flow is diversified among multiple tenants. If a tenant moves out, your building still generates income.

Images courtesy of Sightline Middle Housing under attribution license.

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About Mike Roberts

Mike Roberts is the founder of MyHECM.com, an author, and a highly experienced veteran of the mortgage industry. When he's not working, he enjoys spending time with his family, skiing, camping, traveling, or reading a good book. Roberts is the author of The Reverse Mortgage Revealed: An Industry Insider’s Guide to the Reverse Mortgage, which is available on Amazon.