A triplex can be a worthwhile investment property, but there are certain factors you need to know before acquiring one.

Table of Contents

  1. What Is a Triplex in Real Estate?
  2. Pros of Investing in a Triplex As a Rental Property
  3. Cons of Investing in a Triplex As a Rental Property
  4. What Are the Financing Options Available for Buying a Triplex?
  5. How to Find a Triplex for Your Next Real Estate Investment
  6. How to Set the Rental Price for Your Triplex Investment Property
  7. Wrapping Up: Is a Triplex Worth It as an Investment Property?

So you want to invest in multifamily properties? 

Your goal may be to find a large enough property that you can live in one unit and rent the rest out. The income you’d receive from tenants can help pay down your mortgage. A duplex may not be enough to earn a profit.

On the other hand, buying a quadplex can be too expensive, especially if you are still learning how to invest in real estate. So, what’s the sweet spot?

Enter the triplex.  

What Is a Triplex in Real Estate?

A triplex is a single building with three separate units. All three residences are under one roof. The units are typically built next to each other or stacked on top of each other in a three-floor layout. So, triplexes can have one or more common walls, depending on the design. 

A stacked triplex has a common elevator or stairway that connects the three units. As a result, only tenants have access to the stairway or elevator.

Each dwelling unit is self-sufficient. Triplex homes for sale typically have unique address numbers, kitchens, living rooms, bathrooms, utility meters, and exterior doors on each unit. 

A real estate investor, however, buys a multifamily property as a whole, not a ‌unit at a time. You then rent them out separately to three different families or individuals. 

Alternately, you can live in one unit while renting out the other two to help pay your mortgage and maintenance costs.

Despite being a multifamily housing unit, a triplex gives its tenants the closest living experience to a single-family house.

Speaking of single-family homes and triplexes, what’s the difference?

What Is the Difference Between a Single-Family Home and a Triplex?

The most significant difference between a triplex and a single-family home is that a triplex has common amenities such as a roof, pathway, pool, and yard. In contrast, a single-family home does not share features.

A single-family home is a building on one lot that houses one family. A triplex is a multifamily property with three units on one lot. 

There are no shared walls or roofs in a single-family house. The lot’s yard is often exclusive to the occupants, and there is one driveway, an entry/exit point, and one set of throughways. On the other hand, each unit in a triplex can have a separate entrance. 

Also, most people purchase single-family homes as primary residences. But many triplex buyers purchase them as investment properties and live in one unit while renting the others out. Some triplex owners rent out all three units.

Is a Triplex Home a Commercial or Residential Property?

A triplex is a residential property like duplexes and fourplexes or quadplexes. Many triplex buyers finance their purchases with a residential mortgage, which carries a lower interest rate than a commercial mortgage. Meanwhile, a commercial property consists of five or more residential units.  

What Are the Pros of Investing in a Triplex as a Rental Property?

Investment in a triplex can offer a number of benefits. 

1. Triplex Rentals Can Be a Brilliant Investment for Real Estate Investment Beginners

Triplexes are a less stressful way to get into multi-unit investing. They introduce you to screening and managing renters, for example. In other words, triplex rentals ‌provide a smooth transition from managing single-family homes to running multi-unit buildings

Triplexes also require less capital than larger apartment buildings or fourplexes. Yet, a triplex provides an opportunity to create multiple rental income streams within one property.

Another thing. Since all three units share some amenities, repair and maintenance are easier. A triplex is easy to remodel as tenants move in and out. Every time a tenant changes, you can also improve the property and raise the rent. So, you are unlikely to renovate the triplex all at once, reducing maintenance costs and hassle.

And if you live in one unit, you won’t need to make frequent trips across town to arrange and oversee repairs. As an occupant, you’ll be there to ensure that everything is operating smoothly, saving money and time for repairs. 

One last thing. You can also decrease costs and boost cash flow by writing off your utility bills after you pay them. 

2. Triplexes—and Other Multifamily Homes—Are in High Demand

Renters prefer triplex houses to traditional apartment buildings with multiple units since triplex rentals provide more privacy, in-unit amenities, indoor and outdoor space, as well as less noise and distractions.

Housing demand for multifamily units remains strong. The CBRE and National Multifamily Housing Council predict multifamily home demand will reach historic levels in 2022. Rising liquidity, debt options, post-pandemic recovery, and pent-up demand for multifamily homes will drive the demand.

Multifamily real estate is also seeing unprecedented property value growth. The growth manifested in 2021 as a record 23.6% year-over-year increase. As an example, the average price for apartment units sold in 2021 was $459,212, according to Real Capital Analytics.

3. Renters Will Likely Continue to Flock to Multifamily Homes

A triplex is a good option for elderly Baby Boomers who want to maintain a smaller property but still be part of an intimate community. The triplex will also appeal to younger renters seeking housing options that are more affordable than a single-family home. 

Renting a triplex rental also works out much better for those looking to reduce debt or save money towards getting their first home. So, whatever the economic climate, people still need affordable housing options

Also, downsizing is an unfortunate reality in economic downturns. Many people who would otherwise consider buying a single-family home have been unable to do so after the pandemic. Others have learned to buy smaller houses to reduce financial stress in case of an economic downturn. 

As a result, multifamily leases have increased in demand. For investors, this shows demand for multifamily properties can outperform single-family properties when the economy is slowing down or recovering.

4. Triplexes Qualify for Home Loan Rates

Since a triplex is not a commercial property, it qualifies for residential mortgage rates. A residential mortgage approval depends on your financial situation and the property.

In contrast, apartments with five or more units require commercial financing, which offers shorter terms and more complicated closing procedures. Also, the property’s implied value and rental income dictate how much funding you’ll get to buy an investment property.

Thus, many owners use the triplex rental income as part of the loan qualification.

Lenders generally require a signed lease agreement along with two years’ worth of rental payment history to verify rental payments.

5. Living in a Triplex Makes It an Owner-Occupied Property

A triplex lets you use the house hacking strategy by living in one unit and renting out the remaining two. The tenants then pay a significant portion or all of your mortgage costs. 

But not only that. You also benefit from a lower down payment than commercial property and an excellent interest rate as an owner occupant.

6. Triplexes Offer More Tax Savings

A triplex investment can still get you certain tax deductions and depreciation even if you don’t live in it. For example, your expenses on triplex rentals, such as repair, maintenance, and utility costs, are tax-deductible. 

The only exempt costs are those incurred in your unit. 

Still, the amount you can save will vary, so be sure to consult your tax professional for specifics.

7. Multifamily Properties Have Less Rental Income or Vacancy Risk

When one unit is vacant, the triplex is only 33% empty. If you rent all three units for $2,000 each and two are occupied, you’ll still get $4,000 in rental income to help you pay off your mortgage. 

If you live in one unit, you’d still receive $2,000 monthly to supplement your out-of-pocket loan payment. 

On the other hand, if you own a single-family property, a single vacancy equates to 0% income, which translates to paying the entire mortgage on your own.

Your multifamily property will rarely be totally vacant since it’s likely cheaper than single-family homes with similar amenities in the same neighborhood. 

Also, triplexes generate immediate cash flow, unlike single-family homes that may take time to find long-term tenants.

8. Triplexes Offer Flexibility

Perhaps you’ve wondered how to make money from short-term rentals like Airbnb. With a triplex, you can rent out some units to Airbnb occupants and rent out one or more units as traditional rentals. 

Depending on your market, this can help you increase rental income, achieve 100% occupancy, and improve your cap rate on the property

Related: Hottest Airbnb Markets 2022—Where Should You Invest?

What Are the Cons of Investing in a Triplex as a Rental Property?

As with other real estate investment opportunities, triplexes can have downsides.

1. Triplexes Require a Lot of Capital

The cost of a triplex house for sale can be higher than that of a single-family home in the same location. So, you might not have enough savings to buy one. 

If you’re taking out a home loan, you may need a large mortgage. Thus, you could end up paying high interest on the loan over a long period‌. Both ‌factors can affect your cash flow, cash on cash return, and overall profit.

However, if you don’t mind sharing the investment’s returns with others, you can pool resources with similar-minded investors to afford a triplex near you.

2. Tenant Turnover May Be Higher in Transient Markets

Families that are looking for long-term rental properties and can afford them may repeatedly move out of triplexes and into single-family homes.

The tenants might have raised enough money to purchase a single-family home. 

Perhaps a young family you had as a renter has grown and needs more space than the triplex can provide.

In a market like this, higher turnover is a possibility. 

3. Multi-Unit Investment Properties Require Hands-On Management

You still need to take care of each tenant’s unique needs regardless of where you live. Owner-occupants in a triplex typically handle the needs of two families. 

If you don’t live in the property, you’ll have three families’ needs to cater to in exchange for increased rental income. You may hire a property manager, but that would be an added expense. So, if you are looking for a more passive income stream in real estate, a triplex might not be it.

4. Lenders May Not Consider All Rental Income When Determining Your Mortgage Eligibility

Lenders will rarely let you simply deduct expected rent from your monthly mortgage payment as a qualification for a loan. For example, banks typically consider only 75% of the triplex rental income. 

Instead, they often consider rental income as part of your overall income; monthly triplex rental income plus other sources of income. This means the rentals’ income can only slightly increase your mortgage limit.

5. You Might Not ‌Find a Good Triplex Apartment as Fast as You’d Like

Here’s the thing. There are fewer triplexes than there are single-family properties or duplexes. If you are specifically looking to buy a triplex, you may not find one easily, especially if you are not sure where to look. 

Most investors hold on to their triplex apartments since they provide a vacancy buffer, minimizing rental income risk while paying off their mortgages. 

In addition, since most owners prefer to stay in one unit, they treat the property as a long-term single-family home. Unless they have to move, they do not want to sell.

What Are the Financing Options Available for Buying a Triplex?

Triplexes are eligible for a variety of financing options, including:

  • Owner-occupied loan: This loan is available to people who plan to live in the triplex for at least 70% of the year over a period of at least 12 months. You must move into the property within 30 days of closing. In exchange, you get the lowest interest rate and fees of any home loan.
  • Conventional residential mortgage: This type of financing conforms to Fannie Mae and Freddie Mac requirements. Because the triplex will be your primary residence, you’ll need to put 20% down to get approval. And if you don’t plan to live in it, a 25% downpayment will be required.
  • FHA and VA loans: This option lets you get a mortgage from one of the FHA-approved lenders. Your debt to income ratio needs to remain low and your credit score should be at least 620. You can then put down as little as 3.5% to get started.
  • HUD multifamily financing: If you are a seasoned real estate investor with solid financial standing, and will submit to annual audits, you can get a HUD loan of up to $1 million to purchase or refinance a multifamily investment property. You can expect favorable terms for HUD loans, as the government guarantees them as it does for FHA loans.

So, how do you find the perfect triplex home for sale, so you can enjoy the benefits?

How to Find a Triplex for Your Next Real Estate Investment

You could find lucrative triplexes for sale in a number of ways. Here are some tips.   

1. Use a Reliable Tool for Searching Properties

Mashvisor’s Property Finder lets you search for dozens to thousands of triplex apartments based on your preferred criteria. By selecting “multifamily property” in the filters, you can designate only multifamily homes like triplexes to appear in the Property Finder. 

To narrow down the results, use filters like location, potential rental income, cash on cash return rate, cap rate, repair expenses, budget, rental strategy, and the number of bedrooms and bathrooms you want. 

The Property Finder will display all listings matching your criteria according to their rental potential. Multifamily homes with the highest returns potential will appear first.

Here is what Property Finder results look like:

Use a Reliable Tool for Searching Triplex Properties

Choose the multifamily option under Type of Property in Property Finder to find the best triplex for your investment goals.

The tool lets you compare triplex properties in up to 10 cities at once. You can view each property’s list price and its estimated value and compare them to your budget. 

Want to see the Property Finder in action?

 

2. Run a Neighborhood Analysis With the Real Estate Heatmap

With this tool, you can see a visual overview of how different neighborhoods in a city compare according to certain factors. You can customize what the heatmap highlights based on factors like listing price, occupancy rate, rental income, cash-on-cash return, and rental strategy (traditional or Airbnb). 

The Heatmap highlights the top-performing areas in green and the less-successful areas in red. Because Mashvisor actively collects housing data from multiple, credible, and active MLS listings, you can run multifamily market research for any US housing market you want. Fast. 

In just 15 minutes, you can get all the details without having to travel halfway across the country.

3. Do the Legwork Yourself 

Another option to find a good triplex for investment is to use the traditional approach. Here’s how:

  • Compare the listings on multiple real estate websites to locate and compare triplex properties manually.
  • Drive through different neighborhoods and look for “For Sale” signs on triplexes.
  • Talk to multifamily real estate agents or developers to find out who is selling triplexes.
  • Hire a real estate agent to find, negotiate, and buy a triplex house on your behalf. Offering incentives for the search reduces the possibility of conflicts of interest they may have. 
  • Obtain first-hand information about triplex properties for sale near you by networking with friends, family, and other real estate investors.

In a competitive real estate market, you want to use the latest techniques to find the best investment properties before other investors do. So, doing the legwork may have been helpful a decade ago, but it may not be as helpful today. 

So, what’s next?

How to Set the Rental Price for Your Triplex Investment Property

Be sure to do this before purchasing a property. Once you’ve found the perfect triplex for your requirements, it’s a good time to calculate the potential rental income for each unit. This will help you decide how much to offer for it.

The most efficient method is to use Mashvisor’s rental property calculator, which uses Machine Learning (ML) and predictive analytics to show current and potential rental income within seconds. You will be able to identify multiple triplex apartments according to criteria such as location, occupancy rate, rental income, optimal rental strategy (traditional or Airbnb), cash-on-cash return rate, budget, and list price. 

This granular information will give you a clear picture of the average rent for similar rental properties in the area. You can then decide if you could increase the rent to reduce your mortgage payment time without losing tenants or having difficulties filling vacancies. 

Of course, you don’t want to overcharge either.  

Wrapping Up: Is a Triplex Worth It as an Investment Property? 

A triplex can be a worthwhile investment depending on what you are looking for in a real estate investment property. 

  • It can generate multiple rental incomes to help cover your mortgage, maintenance costs, and even some household expenses.
  • Triplexes can qualify for multiple financing options with low-interest rates, longer payment terms, and reasonable down payments.
  • The market for multifamily homes like triplexes is growing and will continue to do so in the future.
  • Whether you live in one unit or rent them all out, triplexes offer unique tax benefits.

In less than a coffee break, you can find the best triplex for sale near you using our rental property calculator, real estate heatmap, and Property Finder.

Click here to start your 7-day Mashvisor trial. It’s free. Plus, you’ll get a 15% lifetime discount.




Source link

Turn leads into sales with free email marketing tools (en)

Join Us

Subscribe Us

Related Post