The Duplex + Fourplex Dilemma: Which is the Best Investment?

If you are considering investing in a four-plex or duplex in Minneapolis or St. Paul you may want to do your homework about the benefits of each type of property before you invest.

Let’s compare a duplex vs. a four-plex and show the benefits of each:

First off,  you need to look at which provides you the best opportunity. I often find that there is more opportunity to have a better rate of return with a duplex instead of a four-plex. This may seem contrary to what most investors would believe, but consider the numbers.

There are less than one thousand four-plexes in Minneapolis and there are a least six times as many duplexes.

The other big issue that often separates the two is a matter of professional landlords and owner-occupants and novice investors. The people and businesses that own four-plexes are often professional landlords, or at the very least investors that have more money and likely more experience. This is important to note because when you couple the small inventory with the fact that most of the owners of those properties know the market well along with market values the prices are higher and the need to negotiate is often less on these properties.

Duplexes are often a different opportunity.  You often get people that own just one building and they have either owner occupied the property or have just the one investment property. They will often have more of a motivation to sell because it isn’t their livelihood like it is for the professional investors. I often find that sellers will tell me “I just want to get out of the business”.  You won’t often find that with someone that owns larger buildings. Especially in our current hot rental market.

Aside from motivation, duplexes have a few pluses that four-plexes don’t have. You only have two sets of tenants to get along with each other rather than 4. It is easier to obtain financing for a duplex and often may be easier to sell because there are often not enough comparable sales on the market to substantiate the value of four-plexes.

You will also often have separate heat and electrical services which is less likely to happen with a four-unit apartment than it would be with a duplex. When tenants don’t pay for their own heat and electric they often over-use the utilities which can kill your bottom-line.

The benefits for a four-plex can be found in having just one building to manage. You may have a couple of duplexes to equal a fourplex. You will have just one roof to repair or replace and will have just one lawn to mow/shovel snow. You will just have the one building to travel to and have maintenance people go to rather than two.

Sometimes you can benefit from moving tenants from one unit to another in the building if the units have different layouts or number of bedrooms. The other positive to having just one building is when rents increase you can move it up on four units instead of two.

Finally, I find that the actual cash-flow of duplexes vs. four-plexes is often very close in a dollar per dollar comparison. In other words, you will often receive just as much money per month for cash-flow for a duplex as you will for a fourplex. This may surprise some people, however in Minneapolis and St. Paul investors are often willing to pay a premium for a four-plex and tenants will pay a little less to live in one versus a duplex. These two factors often dilute the income of a fourplex and make a duplex a better deal for buyers.

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