How to Build a 4-Plex Rental for Profit

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Building a 4-plex rental unit allows you to borrow more money while generating a higher cash-on-cash return than in single family homes. The appreciation on 4-plex buildings, as well as rental ROI, is generally higher than other types of residential buildings. You'll also benefit from economies of scale. Residents can share laundry facilities, one landlord can manage four tenants instead of one, and the rent from the other three can temporarily cover vacancies from any single room. If you have the cash and/or credit, a 4-plex can be the perfect mid-level investment vehicle.

  • Choose a location. Many of the best investments may not be in your immediate vacinity. You'll need to weigh the benefits of being there in person to the benefits of finding the best markets for rent and appreciation. Also factor crime rates, average rental rates, average unit price, average vacancy rates and local fees and taxes into your considerations.

  • Decide what kind of land or building you'll start with. Do you intend to buy an existing, run-down 4-plex and fix it up? Do you want to convert a different kind of building into a 4-plex? Or do you want to build a brand new 4-plex from scratch? Each kind of project comes with different levels of risk, financial investments and legal requirements. Make sure you check whether your area is zoned for multi-family homes before proceeding.

  • Arrange the financing. You'll generally need between 10 to 40 percent of the appraised property value in cash. You can arrange for financing from a bank, from the seller, or from third-party investors. You'll need to prepare a business plan for the unit before approaching banks or investors. If you're approaching the project as an investor rather than as an owner-occupied building, you'll also need a commercial or investment license.

  • Meet with general contractors and architects for the design of your unit. Hammer out the final pricing and timeline. Alternatively, do the building and construction yourself. That'll save you a lot of money, but requires specialized skills and extra time investment. Always factor in at least 10 percent leeway for extra costs.

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