A triplex is one property consisting of three dwelling units. Each unit includes a kitchen, bathroom and at least one bedroom.

A triplex is commonly known in the investing world as a small multifamily property. Duplexes, triplexes and fourplexes are popular investment properties…if you can find a deal!

In the following article we’ll dive deep into the pros and cons of owning a triplex, how to buy one and how to determine if it’s right for your portfolio.

How to find a triplex?

Triplex properties are typically located in urban and suburban areas. Many of these properties are older single family homes that have been converted into multiple units over time. 

In many small towns in the midwest, with populations ranging from 5,000-10,000 people, 100-year old homes at least 2,000 sq ft have been converted to multifamily properties for income opportunities. 

Unlike single family homes, a new construction triplex is hard to find. With that being said, here are my top methods for finding a triplex for investment.

• Work with a realtor – They can set you up on an MLS search for multifamily properties in your area.
• Driving for dollars – This is a great way to learn more about your market while locating potential deals. When you drive by a desirable property, write down the address and research the owner.
• Join your local REIA – Each city should have a local real estate investors association or at least an informal meeting group. And if there isn’t one, START ONE! Being the facilitator alone will improve your networking opportunities. This is as simple as facilitating meetings to bring together aspiring investors to talk real estate. 

Is buying a triplex a good investment?

Advantages of Buying a Triplex

The main reason to consider adding a triplex to your portfolio is overall diversification of asset class and income streams. The purchase of one property with three income streams is a great way to build leverage. 

Let’s discuss some of the other benefits of buying a triplex: 

• Multiple income streams – A triplex has three income-producing units so in theory, your cash flow would be higher than purchasing a single family home for an investment.
• Asset class diversification – It may seem risky at first to buy a piece of real estate if you’ve always invested in stocks. Historically real estate has produced many millionaires and provides great diversification to any portfolio.
• Reduced vacancy risk – New investors fear vacancy and having to cover an extra mortgage payment if tenants move out. In a triplex, one vacancy is much easier to swallow when you have two other paying tenants. 
• Potential for owner-occupied financing – If you plan on occupying the property you can bypass the typical 20% down payment for investment properties. Depending on your credit score and finances you can take advantage of a 3% down payment loan. In this instance you can spend less out of pocket at acquisition and deploy those funds to improve the property.

Disadvantages of Buying a Triplex

There are also a few cons of buying small multifamily properties. Keep the following factors in mind in your search.

• Expensive acquisition – More units means a higher price tag at purchase in comparison to a single family or duplex. 
• Utility costs – Odd number units (3) are typically older chopped up homes. This means there could be one furnace or one water meter so the cost is on the owner. This is where a side by side duplex would be desirable; separate furnaces, water meters, electric meters. 

How to Buy a Triplex:

Purchasing a triplex is a multi-step process. Not only do you need to find an ideal property but you’ll need to ensure your finances are in order. Let’s take a look at the steps to take in the purchasing process. 

1. Contact a lender – You’ll first need to decide whether or not you’ll occupy the property because this will impact how much is required for a down payment. A lender application process will include checking credit, current assets, debt, income, etc. Once you have a preapproval letter you have the green light to start making offers. 
2. Look at properties – Tour properties with a realtor to see what is available at certain price points. This will also help you learn more about the market by driving neighborhoods. 
3. Analyze deals – Start analyzing every property you tour. At minimum you’ll need to know the price, rent, property taxes and any utilities. Is the rent at market? Is the price too high? Are there lease agreements in place?
4. Make offers – You can’t buy anything until you submit an official purchase agreement with your lender preapproval letter. In your contract ensure you have an inspection period so you can back out if you need to.
5. Accepted offer – If you’re fortunate enough to get an offer accepted, schedule inspections and attend the appointment to ask the inspector questions. 
6. Close on property – Any security deposits get transferred to you during the sale and you now have the keys. Let the tenant(s) know you’re the new owner and discuss the rent process to set expectations. Tenants always want to know if a new owner is going to raise the rent on day one. Regardless, let them know your plan over the next 3-6 months is to analyze the market rent during that time and that you’ll follow up. 

Final Word: 

Buying a triplex is a great way to get started in real estate investing. While it may be scary to take the leap, a small multifamily property diversifies your risk and allows you to get in the game. 

My first property was a house hack in a triplex. I wanted to wait until I knew all the answers before purchasing but this is just not possible. You just need to buy within your ‘buy box criteria’ and learn who to contact if problems arise. Having solid plumbers, electricians, HVAC, handymen in your contact list will give you some peace of mind. 

While unexpected issues came up, I tried to fix the problem on my own before paying a professional, within reason. Although this was stressful at times, I don’t regret my purchase and it is the reason I’ve been able to take on larger projects. I would recommend any newer investor to get started by house hacking a duplex, triplex, or fourplex to get in the game while mitigating their risk.