I would like to purchase a three or four Plex and live in one of the units.I understand I can use an FHA loan or conventional loan with only 3 to 5% down in order to get into the property however I live in a very expensive area and the properties I am looking at are currently 700+. 

My brother had access to the other $160K but ultimately purchased a 4-plex two months later using his own money instead.Currently, its written that if my brother doesn't use the funds then he gets 160k value from the estate extra, as I used my half already but then my dad suggested a 2% annual appreciation on that amount seems fair on the 160k for him, and now he believes it should match his home’s appreciation, which is roughly 5% per year.

You can use this property to hedge any others that you add that may only cover themselves, or require supplement until they are paid off.HOWEVER, if you have decided that your goal is to use Real Estate as a stepping stone to build wealth by upgrading the property you hold each time (condo to house, house to 4-plex, 4-plex to 8 unit, etc) then I think you are right to sell now while you think the property is at the top of it's appreciation.It will be hard for anyone on BP to tell you what to do as we don't know your goal.You are right. 

Particularly I am looking at some 6-plex and 8-plex units in my target market.

Businesses with tons of cash: bars, check cashing, payday lenders, casinos, car washes, vending etc.Then the return's contents are analyzed using the Discriminate Function standards.

However, if you may experience more appreciation in the home compared to a 4-plex.

Quote from @Simon Packman: I have a 4 plex our premium sky rocketed to $8900 a year.

Could be some casino visits to Choctaw. 

@Damien Davis There may be a reason you dont see a lot of 4-plexes.

Buy a 4-plex with an FHA loan.