slug: investing-in-fourplexes-guide

Investing in Fourplexes: Your Ultimate Guide to Quad Property Investing

Fourplex properties—often called quads—represent the pinnacle of small multifamily investing. As the largest property type that still qualifies for residential financing, fourplexes offer maximum income potential while maintaining the advantages of residential real estate. For serious investors looking to generate substantial cash flow from a single property, fourplexes deserve careful consideration.

What Makes Fourplexes Unique

A fourplex is a residential building containing four separate dwelling units under one roof. These units may be arranged in various configurations—four side-by-side, two stacked units, or creative combinations depending on the building's design.

The magic of fourplexes lies in their classification: as 2-4 unit properties, they straddle the line between small residential investments and commercial multifamily real estate. This unique position provides access to residential financing while delivering cash flow more typical of commercial properties.

The Fourplex Advantage

Maximum Residential Income Potential

Four rental units represent the highest income you can generate from a single property while still qualifying for residential financing. This creates powerful cash flow opportunities without requiring commercial loans.

Four-Way Risk Diversification

With four income streams, you maintain 75% of rental income even with one vacancy. This diversification significantly reduces risk compared to smaller properties where a single vacancy has a more dramatic impact.

Residential Financing Benefits

Fourplexes qualify for conventional mortgages, FHA loans (with owner occupancy), VA loans (for eligible veterans), and DSCR loans. These options typically offer better terms than commercial financing available for 5+ unit properties.

Exceptional House Hacking Opportunity

Living in one unit while renting three others creates the ultimate house hacking scenario. Three rent payments can completely cover the mortgage on most fourplexes, allowing you to live for free while building equity.

Economies of Scale

One property inspection covers four units. One roof protects four households. One trip handles maintenance for up to four tenants. These efficiencies reduce per-unit costs and maximize your time efficiency.

Commercial-Level Returns with Residential Benefits

Fourplexes often generate returns comparable to larger commercial properties while maintaining the tax benefits, financing options, and manageability of residential real estate.

Force Appreciation Through Value-Add

Because fourplexes are valued based on their income (Net Operating Income), improving operations directly increases property value. Raise rents by $100 per unit, and you might add $50,000+ to the property's value.

Challenges of Fourplex Investing

Significant Capital Requirements

Fourplexes represent substantial investments, typically requiring down payments of $50,000 to $150,000+ depending on market and purchase price. Investment properties generally require 20-25% down.

Increased Management Complexity

Four tenants mean four times the potential for maintenance requests, late payments, and tenant issues. While still manageable, many fourplex owners transition to professional property management.

Limited Market Inventory

Fourplexes represent a small percentage of available properties in most markets. Finding properties that meet your investment criteria, in good locations, at reasonable prices requires patience and persistence.

Transition to Commercial Standards

While financing remains residential, fourplexes often require commercial-grade systems, more robust construction, and higher-quality maintenance than single-family homes, increasing operating costs.

Tenant Turnover Impact

With four units, you'll likely deal with at least one tenant turnover annually, requiring regular attention to marketing, screening, and unit preparation.

Financing Fourplex Investments

DSCR Loans: The Investor's Choice

For non-owner-occupied fourplexes, DSCR (Debt Service Coverage Ratio) loans offer tremendous advantages:

Income-Based Qualification: Approval depends on the property's rental income, not your personal income. Perfect for self-employed investors or those with multiple properties.

Portfolio Scaling: DSCR loans don't count against conventional loan limits (typically 10 mortgages), allowing unlimited portfolio growth.

Faster Closing: Less documentation than conventional loans means quicker transactions.

Competitive Rates: When the property's DSCR is strong (1.3+), rates can be very competitive.

Example DSCR Calculation for a Fourplex:

Total monthly rent (4 units @ $1,500): $6,000
Monthly mortgage payment (PITI): $4,200
DSCR: $6,000 / $4,200 = 1.43

A 1.43 DSCR demonstrates strong cash flow and would qualify for excellent [DSCR loan terms](/blog/dscr-loan-term-options).

Conventional Financing

Conventional loans work well for fourplexes when:

You haven't maxed out your 10 mortgage limit
You can document stable W-2 income
You want the lowest possible rates (for well-qualified borrowers)
You're purchasing as an owner-occupant with lower down payment

FHA Loans

FHA financing allows first-time buyers to purchase fourplexes with just 3.5% down if they live in one unit. This creates an exceptional opportunity for investors to acquire a substantial cash-flowing property with minimal capital.

Example: Purchase a $400,000 fourplex with $14,000 down (3.5%), live in one unit, and collect rent from three units that covers most or all of your mortgage.

VA Loans

Eligible veterans can use VA loans to purchase fourplexes with zero down payment while living in one unit—an incredible opportunity to build wealth through real estate.

Evaluating Fourplex Opportunities

Essential Financial Metrics

1. Gross Rental Income Calculate total potential rent from all four units at market rates.

2. Net Operating Income (NOI) Gross income minus all operating expenses (excluding mortgage):

Property taxes
Insurance
Utilities (if landlord-paid)
Maintenance and repairs
Property management (typically 8-10% of gross rent)
Vacancy allowance (typically 5-10%)
CapEx reserves (1-2% of property value annually)

3. [Capitalization Rate](/blog/calculating-cap-rate-guide) (Cap Rate) NOI ÷ Purchase Price = Cap Rate Compare to similar fourplexes and market averages. Higher cap rates indicate better returns (but often higher risk).

4. Cash-on-Cash Return Annual pre-tax cash flow ÷ Total cash invested = CoC Return Total cash invested includes down payment, closing costs, and initial repairs.

Target: 8-12%+ for strong performance

5. Debt Service Coverage Ratio (DSCR) Monthly gross rental income ÷ Monthly mortgage payment = DSCR Lenders want 1.25+, aim for 1.3-1.5 for safety and optimal terms.

6. Price Per Unit Total purchase price ÷ 4 units = Price per unit Compare to other fourplexes and smaller multifamily to ensure you're not overpaying.

7. Gross Rent Multiplier (GRM) Purchase price ÷ Annual gross rental income = GRM Lower is generally better. Compare to similar properties in your market.

Location Analysis

Prime fourplex locations feature:

Strong Rental Demographics:

Employment centers within reasonable commute
Universities or colleges (built-in rental demand)
Medical facilities (stable employment)
Growing population and job markets

Infrastructure and Amenities:

Public transportation access
Shopping, dining, and services
Parks and recreation
Good schools (even renters care about this)

Zoning and Regulations:

Areas that allow multifamily properties
Reasonable landlord-tenant laws
No rent control (or favorable rent control)
Business-friendly local government

Market Fundamentals:

Low vacancy rates (under 5%)
Rising rents (check 3-5 year trends)
[Property appreciation](/blog/best-cities-for-appreciation-2026) history
Economic diversity (not dependent on one employer)

Comprehensive Due Diligence

Physical Inspection:

Professional inspection of all four units
Roof condition and age (replacements are expensive)
Foundation and structural integrity
HVAC systems for each unit
Plumbing throughout the property
Electrical panels and wiring
Water heaters (four potential replacements)
Appliances in each unit
Common areas and exterior
Parking adequacy
Separately metered utilities (or shared configurations)

Financial Review:

Current rent roll with lease terms
2-3 years of expense history
Property tax history (and any pending appeals/increases)
Insurance costs (fourplexes can be expensive to insure)
Utility costs if landlord-paid
Deferred maintenance items
Capital expenditure schedule

Legal and Compliance:

Zoning compliance and certificate of occupancy
Building code compliance
Any existing violations or liens
Local licensing requirements
Rent control or stabilization laws
Current leases (review for unusual terms)
HOA documents if applicable

Market Research:

Comparable rent analysis for each unit type
Recent fourplex sales in the area
Vacancy trends
Absorption rates (how quickly units rent)
Future development plans nearby

Property Management Strategies

The Self-Management Decision

When self-management makes sense:

You live in one of the units (house hacking)
Property is near your home or work
You have time and enjoy landlord responsibilities
You're handy and can handle minor repairs
You want to maximize cash flow initially
You're building systems to eventually manage multiple properties

When to hire professional management:

Property is distant from your home
You have multiple properties
You have a demanding career
Scaling your portfolio is a priority
Time value exceeds 8-10% management fee
You want to be a passive investor

Effective Tenant Management

Rigorous Screening: Implement consistent screening for all units:

Credit score minimums (typically 600-650+)
Income verification (3x monthly rent)
Employment verification
Previous landlord references (not just current)
Background and eviction history
Consistent application of criteria

Lease Staggering: Ideally, stagger lease end dates across the four units to:

Avoid simultaneous vacancies
Spread out turnover work
Maintain consistent cash flow
Reduce seasonal vacancy risk

Professional Communication:

Use written leases with clear terms
Document all communication via email/text
Set expectations for maintenance response times
Provide clear move-in/move-out procedures
Implement online rent payment systems
Conduct regular property inspections

Maintenance Systems:

Establish relationships with reliable contractors
Create maintenance request procedures
Budget adequately for repairs (1-2% of property value annually)
Build capital reserves for major replacements
Respond promptly to urgent issues
Perform preventive maintenance

Maximizing Revenue

Optimized Pricing:

Price each unit based on its specific features
Consider floor level, views, upgrades, parking
Monitor market rents quarterly
Implement annual rent increases (check local laws)
Offer slight discounts for long-term renewals
Charge appropriate fees (pets, parking, storage)

Value-Add Improvements: High-return improvements include:

Kitchen updates (cabinets, countertops, appliances)
Bathroom modernization
Flooring upgrades (luxury vinyl plank is popular)
Fresh paint in neutral, modern colors
Improved lighting and fixtures
Added storage solutions
Energy-efficient upgrades (lower utilities)
Enhanced curb appeal and common areas

Expense Reduction:

Appeal property tax assessments
Shop insurance annually
Implement water-saving fixtures
Upgrade to energy-efficient HVAC
Regular preventive maintenance (cheaper than emergency repairs)
Build relationships with contractors for better pricing
Consider tenant-paid utilities where feasible

Tax Advantages of Fourplex Ownership

Depreciation

Depreciate the building (not land) over 27.5 years, creating substantial paper losses that offset rental income.

Example: $500,000 fourplex with $100,000 land value = $400,000 depreciable basis Annual depreciation: $400,000 ÷ 27.5 = $14,545

This $14,545 annual deduction shelters rental income from taxes without any actual cash outlay.

[Cost Segregation](/blog/depreciation-real-estate-guide)

Accelerate depreciation by identifying components with shorter useful lives:

Appliances (5 years)
Carpeting (5 years)
Landscaping (15 years)
Personal property (5 years)

Cost segregation studies can create significant upfront deductions, though they're typically cost-effective for properties $300,000+.

Deductible Expenses

Common deductions include:

Mortgage interest
Property taxes
Insurance
Repairs and maintenance
Property management fees
Legal and professional fees
Travel to/from property
Home office (if managing from home)
Advertising and marketing
Utilities
Supplies and tools

[1031 Exchange](/blog/1031-exchange-guide)

[Defer capital gains](/blog/1031-exchange-vs-opportunity-zones) taxes when selling by exchanging into another investment property of equal or greater value. Fourplexes work well in 1031 exchanges because they can be exchanged for larger commercial properties or multiple smaller properties.

Building a Portfolio with Fourplexes

The BRRRR Strategy

Buy, Rehab, Rent, Refinance, Repeat works exceptionally well with fourplexes:

Buy a fourplex below market value (fixer-upper)
Rehab to increase both rents and property value
Rent at market rates with improved units
Refinance based on new higher value (often pulling out original investment)
Repeat with the recycled capital

Scaling with Multiple Fourplexes

Many investors build substantial portfolios of fourplexes rather than jumping to larger commercial properties:

Advantages:

Geographic diversification
Risk spread across multiple properties
Continued residential financing access
Ability to sell individual properties strategically
Manageable scale for self-management or small teams

Example Portfolio Growth:

Year 1: Purchase first fourplex (house hack or invest)
Year 2-3: Refinance or save for second fourplex
Year 4-5: Leverage equity for third fourplex
Year 6+: Own 3-4 fourplexes generating $4,000-$8,000 monthly cash flow

Transitioning to Larger Commercial

Fourplexes also serve as excellent preparation for larger commercial multifamily:

Build management systems
Understand multifamily operations
Establish contractor networks
Develop financial analysis skills
Create track record for commercial lenders
Build equity and cash flow for larger down payments

Common Fourplex Investing Mistakes

Overoptimistic Financial Projections - Always use conservative numbers with adequate vacancy and maintenance allowances.
Insufficient Capital Reserves - Four units mean four times the potential for simultaneous issues. Maintain 6-12 months of reserves.
Skipping Professional Inspections - Cutting corners on inspection to save $500-$800 can cost tens of thousands in unexpected repairs.
Weak [Tenant Screening](/blog/best-property-management-software-2026) - One problem tenant can destroy your returns and create headaches across all four units.
Ignoring Property Management Costs - Even if self-managing initially, underwrite with 8-10% management fees to ensure deals work if you scale.
Buying in Poor Locations - Location drives everything—occupancy rates, rent growth, appreciation, and tenant quality.
Underestimating Renovation Costs - Get multiple contractor bids and add 20% contingency for unexpected issues.
Failing to Verify Income - Trust but verify seller's rent roll. Call tenants, review leases, check payment history.
Neglecting Legal Compliance - Understand local landlord-tenant laws, fair housing requirements, and licensing needs.
Overleveraging - Stretching to buy a barely cash-flowing fourplex leaves no margin for error. Pass on marginal deals.

Market Trends for 2026

Strong Rental Fundamentals: Housing affordability challenges continue supporting robust rental demand across most markets.

Shift to Residential Multifamily: Investors are increasingly focusing on 2-4 unit properties as they offer better returns than single-family rentals with manageable complexity.

DSCR Loan Growth: These investor-friendly loans continue gaining popularity, making fourplex investing more accessible.

Value-Add Opportunities: Many older fourplexes need updating, creating opportunities to force appreciation through renovations.

Remote Work Impact: Demand for larger units with home office space benefits fourplex properties with spacious floorplans.

Is a Fourplex Right for You?

Fourplexes work well for:

Serious investors seeking substantial cash flow
House hackers willing to live in multifamily
Those ready to scale beyond single-family or small multifamily
Investors with adequate capital reserves
Those comfortable with moderate management complexity
Long-term wealth builders focused on cash flow and appreciation

Fourplexes may not suit:

Investors with very limited capital
Those seeking completely passive investments
Investors unwilling to handle landlord responsibilities
Those lacking time for management oversight
Risk-averse investors uncomfortable with complexity

Conclusion

Fourplex investing represents the ultimate small multifamily opportunity—maximum income potential while maintaining residential financing advantages. Four income streams provide exceptional cash flow and risk diversification, while economies of scale keep operating costs manageable.

Success with fourplexes comes from thorough due diligence, conservative financial analysis, strategic financing through DSCR loans or conventional mortgages, and solid property management. Whether you're house hacking your first fourplex or building a portfolio of quads, the fundamentals remain the same: buy right, manage well, and hold for the long term.

The combination of cash flow, appreciation, tax benefits, and [forced appreciation](/blog/equity-vs-appreciation) opportunities makes fourplex investing one of the most powerful wealth-building strategies in real estate. With the right property in the right market, a single fourplex can generate enough cash flow to significantly impact your financial independence—and that's just the beginning of what's possible when you scale.

Investing In Fourplexes Guide

Key Takeaways