Huge Pros – Invest in Triplexes and Four-Plexes in Real Estate

The nice thing about a triplex or a quad is that you can buy it like a house.

houses from dollars on white isolated background

If you plan to live in the building, you can find lenders that will offer loans requiring low down payments. Interest rates on buildings housing 2 to 4 units also can be as low as they would be for single-family homes. The borrowing process for buildings with four or fewer units is quite easy for people who will occupy the properties.

Aside from being easy, buying a triplex or a quad can be cost effective and profitable. Don’t expect to have extreme flexibility and creative financing with these buildings, though — especially if you don’t plan to occupy the property. Many lenders sell their loans for small apartment buildings (fewer than five units) on the secondary mortgage market; therefore, the loan requirements must meet the market’s strict rules. Some lenders, however, service their own loans and do not sell them, so they can be quite creative in their financing. For example, you might be able to arrange for the seller to hold a substantial second mortgage that reduces your down payment requirements. You and your lender agree on the terms of an in-house, portfolio loan. As long as you make a lender comfortable with the terms, anything is possible.

If you have the status to obtain a VA loan, you might be able to buy up to a four unit building with nearly no down payment. An adjustable rate mortgage (ARM) also can be a good choice. And it’s fairly easy to obtain an FHA loan, where the down payment can be less than 5% of the purchase price. These conditions are based on the fact that the purchaser will reside in the property being bought. If you do not plan to occupy the building you are buying, a down payment of 20% of the purchase price likely will be required. If the lender will sell the loan to the secondary mortgage market, a seller willing to hold paper on the deal can do so, but the full amount of the down payment must come from you, not from the seller in the form of a second mortgage.

Buying buildings that can be financed like houses makes a lot of sense for investors who will live in the buildings. Buying an apartment building with a down payment of 5 percent or less is a deal that is hard to resist. However, entering into a deal with very little money can make it difficult to generate a positive cash flow. If you will use the building as a home and as a cash producing investment, the pendulum swings in your direction. A profit only investor would need positive cash flow or growing equity to justify a purchase. This is not the case if your investment is also your home. Most people buy single-family homes to live in, the only major rewards being growing equity and some tax advantages. If you buy a multi-family building to live in, you get the same advantages, plus rental income and probably some additional tax benefits.

People who buy single-family homes to live in make investment in these properties. Most homeowners get tax advantages when they finance their houses. They also tend to see their homes’ value increase over time. These two factors alone make the purchase of a home sensible. However, if you can get these benefits and have tenants who will pay for most, if not all, of your housing expenses, the investment becomes much more lucrative.

Original article by BDS Denver.

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