2 fourplexes or one 8 Plex?

Question

What is better???? buying two fourplexes or one eightplex???

David Beard · Answer

Buy the four-plexes:

* The extra 2% of spread on resi financing will overwhelm the higher upfront closing costs.
* Liquidity - you can sell just one if necessary to a larger buyer pool
* ROI - larger LTV will amplify cash flow/ROI
* Refinancing risks - eliminated with resi, 5 yr term likely on the comm
* More tenant separation, less dispute
* Diversification - if an area takes a turn for the worse, the 4's in different locales (mile or more apart we'll say) will lesse impact
* In my area, landlords don't have to provide a dumpster for 4s', but do for 5+.

If you go resi on 4's, might use a bank that also does comm, so that later you can leverage the relationship when you have larger projects or too many units to use resi(even if they're separate departments).

The vacancy argument has no merit, you have x% vacant of x units owned, doesn't matter how many properties.

Good investing

Account Closed · Answer

what anythony says is correct, but he's assuming the 4plexes would be far apart.  either way, you own 8 rentals and still have one vacancy.  that's why i'm not crazy about this argument.  from a financing perspective, you may find a better time and better rates for 4 plexes--at least for the 1st one.  when it comes to appraisals, 8plex would be more considered commercial going by income approach, while the 4plexes may be appraised on income approach or comps--i've had it both ways.

Tom S. · Answer

Personally I think the 2 fourplexes are better simply because of the financing.  As mentioned above, up to 4 units is residental financing and 5+ is commercial, so you'll most likely get a better rate on the 4 unit.  In addition, when you go to sell, you'll have more options: sell one or both.  More buyers will qualify too.  Walking into a bank and getting a loan on an 8 unit isn't the easiest task.

- Tom

Steve Babiak · Answer

The 8-plex will require commercial funding - no residential funding will be able to touch it.  Any 4-plex has a chance of being funded with a residential loan or a commercial loan - so this allows for potentially more funding options.

LTV and appraisals are subject to change at the lenders' discretion, so it's hard to predict what you'll encounter.

Only you know what your circumstances and goals are, so only you can really determine which is best for you.

Christopher Middleton · Answer

Correct me if I'm wrong, but for the two fourplexes you will need two seperate loans, and thus two closings.  More initial cost.  However, you can get a 80% LTV on a one to four unit multi-family and only a 75%LTV on a 5+ unit.

I haven't done the numbers, but it looks like you will pay the same amount of cash upfront regardless of which route you take.  If you go the route of 2 fourplexes then more of your upfront cash will go to closing costs.  If you go the route of the 8 unit apartment more of your upfront cash will go to equity.

I would say 8 unit apartment.

Account Closed · Answer

good points david on mitigating risk!!  glad you agree with me on the vacancy argument...all the books seemed to push this argument when i was reading them a year ago, but at the end of the day you have 8 units, regardless of how they're divided

Jak Dadi · Answer

Thank you all for the great inputs. I think the higher down payment, higher interest rates therefore lower cash flow and some very good points raised by David I think I have my answer...at least for another one year....

Jak Dadi · Answer

Thanks, All for your inputs. I understand the point about residential and commercial financing, and scalability. When I looked around, it seems like residential properties can be financed at around 4.5% for 15 yr terms, but commercial is around 6.5% if not more (unsure of the length),so cash flow would be lower for commercial property, assuming rents and expenses would be more or less the same.  My goal right now is to generate cash flow so I can buy more.

Anthony Larson · Answer

theoretically a eight plex because econmy of scale kicks in. also if one unit isn't rented i a quad your at a 25% vacancy. whats it in a 8 plex 12.5 percent.

2 fourplexes or one 8 Plex?

Most Popular Reply