Duplexes to Fourplexes: Financing 2 to 4 Units for Cash Flow
Two to four units can deliver more rent per purchase and spread vacancy risk. Here's how financing works and what a fourplex looks like on paper.
Short answer
Properties with 2 to 4 units are still residential, so they're financed with residential loans like DSCR rather than commercial loans. Lenders add up the market rent for every unit, usually from the appraiser's small residential income report, and divide it by the payment. More units means more rent against one mortgage.
Key points
- 2 to 4 units still use residential financing.
- Rent from every unit counts toward the DSCR.
- Appraisals use Form 1025 for value and rents.
Why investors like 2 to 4 units
- More rent per closing. One loan, several rent checks.
- A vacancy cushion. One empty unit doesn't stop the income.
- Residential financing. Up to four units you're still in the residential world, with longer terms than most commercial loans.
How lenders count the rent
The appraiser estimates market rent for each unit, usually on Form 1025, and the lender divides the total by the payment. Leases in place help, and many lenders use the lower of lease and market rent for each unit.
Deal sheet: Fourplex, illustrative
| Amount | |
|---|---|
| Purchase price | $640,000 |
| Loan, 75% | $480,000 |
| Principal and interest, 7.50% 30-year | $3,356 |
| Taxes and insurance | $900 |
| Total payment (PITIA) | $4,256 |
| Rent, 4 units at $1,550 | $6,200 |
| DSCR | 1.46 |
Have a rental in mind? Send the address and expected rent, and a KREC loan advisor will run the DSCR for you. Check my DSCR
What to check before you buy
- Separate utility meters, or a plan for owner-paid utilities
- The unit mix and how each unit compares to local rents
- Deferred maintenance across every unit, not just the one you toured
- Insurance quotes for a multi-unit building
At five units and above, financing moves to commercial loans; see five units and up.
Frequently asked questions
Is a fourplex financed as residential or commercial?
Residential. Properties with up to four units are typically financed with residential loans such as DSCR; five units and up usually move to commercial financing.
How is rent calculated on a duplex for a DSCR loan?
The lender adds the market rent for each unit, usually from the appraiser's Form 1025, and divides by the total monthly payment.
Do 2 to 4 unit properties need a bigger down payment?
Sometimes. Requirements vary by program, and some lenders ask for slightly more down or more reserves on multi-unit properties.
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