How Much Does a Fourplex Cost to Buy?

Purchasing a fourplex, a property with four distinct dwelling units, offers an appealing opportunity for real estate investors and individuals seeking owner-occupied housing with income potential. The financial commitment extends beyond the initial listing price. Understanding the full scope of costs is important for any prospective buyer to accurately assess the investment. This article details the various financial components contributing to the overall cost of buying a fourplex.

Understanding the Purchase Price

The advertised or negotiated purchase price forms the largest part of a fourplex’s acquisition cost, but this figure varies significantly due to several influencing factors. Location plays a substantial role, as properties in desirable areas with strong job markets, good schools, and amenities command higher prices. Urban centers generally have elevated property values compared to suburban or rural areas, reflecting demand and economic stability.

The physical condition of the property also heavily impacts its price. A well-maintained fourplex with recent renovations, updated systems, and sound structural integrity sells for more than a “fixer-upper” requiring extensive repairs. Factors like the age of the building, and the condition of the roof, HVAC systems, plumbing, and electrical wiring all contribute to the perceived value and potential deferred costs.

Prevailing market conditions, including supply and demand, current interest rates, and the broader economic climate, directly influence pricing. A seller’s market, characterized by high demand and limited inventory, can drive prices upward, while a buyer’s market may offer more negotiation leverage. The income-generating potential of the fourplex also significantly affects its valuation for investors. Properties with higher current or projected rental income, often assessed using metrics like capitalization rates or gross rent multipliers, tend to justify a higher purchase price. The specific unit mix and size of individual units also influence its value, with larger units or more bedrooms often commanding higher rents and contributing to greater property value.

Upfront Acquisition Expenses

Beyond the agreed-upon purchase price, a buyer incurs several significant upfront expenses, primarily at or before the transaction’s closing. A substantial component is the down payment, a percentage of the purchase price paid in cash. For investment fourplexes, down payments often range from 20% to 25% of the purchase price. Owner-occupied fourplexes may qualify for lower down payment options, such as 3.5% with an FHA loan, requiring the buyer to reside in one of the units.

Various closing costs represent another category of upfront expenses, typically amounting to 2% to 5% or more of the loan amount or purchase price. These include:

• Loan origination fees: Charges from the lender for processing the loan.
• Appraisal fees: Paid to an independent appraiser to determine the property’s market value, a requirement for most lenders.
• Title insurance: Covers both the lender and the owner, protecting against title defects or claims.
• Escrow fees: For managing funds and documents during the transaction.
• Recording fees: Paid to the local government to officially register the property transfer.
• Attorney fees: May apply if legal counsel is involved in the closing process.
• Survey fees: Might be necessary to verify property boundaries, depending on the property and lender requirements.
• Prorated property taxes and initial homeowner’s insurance premiums: Covering the period from closing until the next billing cycle.
• Lender-specific fees: Such as underwriting or document preparation charges.
• Real estate transfer taxes or stamps: Often imposed by state or local governments on property sales.

Financing Considerations

Financing method and terms directly influence both upfront cash and long-term financial commitment. Different loan types come with varying down payment requirements. Conventional loans for multi-unit properties often necessitate down payments of 15% to 25% depending on the number of units. Owner-occupied FHA loans can allow for as little as 3.5% down for a fourplex, requiring the buyer to reside in one of the units. Veterans Affairs (VA) loans, for eligible service members and veterans, may even offer zero down payment options for owner-occupied multi-unit properties.

Interest rates significantly affect the total cost of borrowing over the loan’s lifetime. Higher interest rates result in larger monthly payments and a greater overall expense for the property, even if they do not directly increase the initial cash outlay. Lenders may offer the option to pay “points,” which are prepaid interest charges, at closing to secure a lower interest rate for the loan’s duration. While paying points increases the immediate cash needed at closing, it can reduce the total interest paid over many years.

Lenders also evaluate a borrower’s financial capacity using metrics like Debt-to-Income (DTI) and Loan-to-Value (LTV) ratios. The DTI ratio compares monthly debt payments to gross monthly income, while the LTV ratio compares the loan amount to the property’s appraised value. These ratios influence a lender’s willingness to approve a loan and the terms offered, impacting the required down payment and interest rate. Minor costs, such as credit report fees, are also part of the total cost when securing financing.

Pre-Purchase Due Diligence

Before finalizing a fourplex acquisition, prospective buyers incur costs related to comprehensive pre-purchase due diligence. These expenses are essential for assessing the property’s condition and ensuring its value aligns with the purchase price, even if the transaction ultimately does not proceed. A professional property inspection is a fundamental step, with costs varying based on the property’s size and complexity. Inspectors examine structural elements, mechanical systems, electrical wiring, plumbing, the roof, and the foundation to identify existing issues or potential future repair needs.

An appraisal, typically required by lenders, assesses the property’s market value. The cost of this appraisal is generally borne by the buyer and helps confirm that the purchase price is justified by the property’s value. This step is important for securing financing and ensuring the buyer is not overpaying. For older properties or those with specific histories, environmental reports may be necessary to check for hazards like lead paint, asbestos, or mold, adding to due diligence costs.

Specialized inspections, such as for termites, radon, or sewer lines, might also be recommended or required depending on the property’s location and characteristics. These additional inspections help uncover hidden issues that a general inspection might miss. Although these due diligence costs are incurred before closing and do not guarantee a purchase, they are an important part of the overall cost to buy, providing crucial information for risk assessment and informed decision-making.