Real Estate Investing: The Quickest Path to Early FI (I Should Have Done This!)


The year is 2015… not 2011, or 2012, or 2013… Sadly. Although I’ve made quite a bit of progress on my journey to early financial independence so far, something I’ve realized through the years is that if I could do it all over again, the one thing I would have done differently (and made sure to do) is this:

I should have bought a fourplex!

The beauty behind 4 unit properties (fourplex or 4-flat) is that they qualify for conventional mortgages. Although a fourplex houses multiple tenants/families (collect up to FOUR rent checks!), you can still get a 30 year fixed mortgage on them. Fourplexes are classified as residential properties, not commercial, so they adhere to the typical Fannie/Freddie underwriting guidelines.

Not only that, you can even reduce the amount of downpayment required at closing if you qualify for a low downpayment FHA (as low as 3.5%) or VA (if you are military) loan, and are willing to live in one of the units (owner occupied/primary residence).

You can then rent out the other three units and have your tenants pay for your mortgage. This could help you live rent-free (or close to it)… and as everyone who’s been on the journey to early FI knows, housing is usually THE killer expense each and every month.

But even if you didn’t want to live in a fourplex, I still think they would have been the best play. Four units generating massive cash flow on just a SINGLE loan! As you get deeper into your real estate investing career, you start to realize the importance of maximizing each loan. After 4 loans, regardless of how small the loan amount is, the underwriting guidelines become much more strict… So use them up wisely!

Anyway, during the crash, 2009-2013, you could have EASILY picked up a fourplex and have it cash flow… For sure, it would have cash flowed with a conventional 30 year fixed mortgage with a typical 20% to 30% downpayment. Actually, prices were so cheap back then, people were even able to find cash flow while living in one unit on a FHA loan (which also requires an additional payment for PMI).


And that’s exactly what so many savvy people did to short-cut their journey to financial freedom.

Through the years (after appreciation takes effect, both market and forced), these brilliant, same investors then found ways to cash out refi or take on HELOCs to pull equity out and deploy elsewhere. Again, if you bought at the right time, even after a refi, you would still have the fourplex cash flowing…

Lather. Rinse. Repeat.

Before you knew it, you would have owned 3 fourplexes, or 12 units… Cash flow of $2,000+/month, easy. Early FI in 2-3 years.



The concept is incredibly simple. If we use the Bay Area as an example (a really expensive example), you could have picked up a prime fourplex during the downturn for around $600,000, maybe even $500,000 (if you digged hard enough to find one).

Just as an example, we will assume the following:

  • 2/1 configuration for each unit
  • $1,300/month rent for each unit ($5,200/month total)
  • 10% PM fee
  • 5% vacancy
  • 10% maintenance

The actual numbers are not so important because the property would have cash flowed, regardless. Using a middle-of-the-road downpayment of 25%, a fourplex investment back then would have looked something like this:


That’s close to $700/month in positive cash flow! With reserves and a PM in place to boot, in one of the most expensive places to live in the country. So, you can use your imagination and easily imagine what the returns might have been like in a more affordable location.

And had you utilized a FHA loan, you would only have needed a 3.5% downpayment, or $21,000. So, there literally was no barrier to entry (provided you had a stable, good income job).

Today’s Market

If you think the cash flow returns above are insignificant, you would only need to compare with today’s prices to realize what a once-in-a-lifetime opportunity we really had back then.

In today’s market, a similar fourplex might be worth around $1.23MM:

Screen Shot 2015-01-02 at 8.30.00 AM

Talk about some AMAZING appreciation! Again, had you utilized a FHA loan, the downpayment would have only required $21,000. But your $600k property would have more than doubled in value! Where else but real estate can you turn something very little (~$20,000) into something very massive ($600,000) in only 3-4 years, relatively safely?

Today, with gross rents at ~$5,000 to $6,000/month… yeah, I’m not too sure how this thing could possibly generate anything but negative cash flow. Forget the 2% Rule or 1% Rule… This thing probably won’t get you even 0.5% Rule. The Cap Rate is a paltry 2.38% and the Gross Rent Multiplier (GRM) an outrageous 19.18.

So, this is one of the reasons why local investors such as myself have had to resort to out-of-state investing.

Lesson Learned

When it comes down to it, there are many paths that can take you to early FI. No one has a crystal ball, so we can never time the market… but you don’t really need to. Opportunities will always present themselves, and when they do, you must take action!

Luck is when preparation meets opportunity.

Whoever got in on those type of fourplex deals is sitting in a most enviable position today, because you are win-win, regardless:

  • Hold on and collect cash flow. Utilize economy of scales. Say rent increases from $1,300/month to $1,500/month in the area… you get $200/month extra cash flow PER UNIT!!!
  • Sell the property. If you lived in it for 2 out of the last 5 years, that’s upwards of $250k to $500k in profit, tax-free.
  • 1031 exchange into a larger, commercial unit that cash flows even better and avoid capital gains taxes altogether.
  • Take out a HELOC or cash out refi and pull equity out to access more investment capital.

Regardless of what you decide to do, you are coming out well, well ahead…

Surprisingly, or not, these type of fourplex deals can still be found across the country. Certainly not in the Bay Area, but they are out there, somewhere. Perhaps in your own backyard?

And that’s really the “big secret” on how you get to early FI in warp speed… I wish I would have taken this very approach because my biggest mistake was not acquiring enough units in the Bay Area. Yes, when rents go up locally, it helps me out… but I only own 2 units.

Imagine if I had 12… 😉

Print Friendly, PDF & Email
Sharing is Caring:
0 0 vote
Article Rating
Notify of
Newest Most Voted
Inline Feedbacks
View all comments
The Stoic
5 years ago

Nice review of the benefits of multi-unit housing. Before I bought my house I looked at a fourplex and really, REALLY wanted to buy it. It was in my price range, needed work and my plan was to live in one unit and rent the other three out. Unfortunately it needed some foundation work that was going to be expensive and might not actually fix the problem. I decided not to pursue it, although a part of me wanted that property so bad I could taste it! I’m hoping to purchase another property this year and looking at a duplex… Read more »

5 years ago

Hi! I just recently found your blog when I was using google to find blogs about FI. I am a 31 year old guy from Sweden and I have been aiming for FI for almost two years now. I really like your blog and all the work you put in. It is amazing that you take time to give feedback to your followers. 🙂 It is very interesting to learn from your experiences.. it turns out that many things are similar in my country. Unfortunately, the real estate market is not one of them. 😉 Your success is very inspiring… Read more »

5 years ago

A fourplex is something we have been thinking about for our future real estate investment. I know a few people who do this and then live in one of them themselves in order to save and make money.

Mr. Captain Cash
5 years ago

FI Fighter, My own investment portfolio is entirely in stocks invested in index funds. I looked into real e-state and purchasing rental properties but choose to go the stock route instead due to the simplicity. I am looking forward to watching your results over the years. Thanks for being so open. Kalle, I would suggest lowering your withdrawal rate as according to firecalc: $700,000 investment portfolio withdrawing 6% ($42,000/year) and a 50 year retirement you have a 66% chance of running out of money. $700,000 investment portfolio withdrawing 3% ($21,000/year) and a 50 year retirement you have a 0% chance… Read more »

Even Steven
5 years ago

I think real estate is the best way to FI, we bought a Mulit-unit(3 units), live in 1 and rent the other 2, so to say I agree with you is an understatement.

Even Steven
5 years ago
Reply to  Even Steven

What numbers did you use for your CAP Rate? I’ve never really used the calculation before.

No Nonsense Landlord
5 years ago

I have five 4-plexes, plus a couple of duplexes, and your analysis is correct. Except I bought mine for only ~$300K, and rents are ~$1100. Even better cash flow than you are projecting. I have well over 6 figures of cash to take to the bank after all my expenses.

I wish mine were worth 1.2M, but I do think they have gone up 25% or so.

There are many avenues of investing, and pros and cons of each. Live-in rentals are a but advantage to someone just starting out. Duplexes and 3-4-plexes.

5 years ago

That’s painful to read, as so many of us missed the boat. I suppose I should prep for deals in the Mid-west and buy up in the next down turn. It seems like a lot of people are able to time the market in real estate because you can rent them out while you wait for the recovery.

As always, thanks for the great piece!

Midwestern Landlord
Midwestern Landlord
5 years ago

Great article. I have been preaching this same concept for some time now. When you can get 30 year fixed interest rates in the 4% range (or lower), it makes a very compelling investment. While the Bay area may not cater to deals like this anymore, other markets in the country do. A couple of points to add to the discussion: 1) Self managing makes a big difference on monthly cash flow. In the above example, this would improve the monthly cash flow to $1,200/Mo per building (versus $700). 2) While this is a great strategy, it still takes money… Read more »

5 years ago

Some great new construction 4-plexes in San Antonio. Second property from the bottom. Cash flow seems good depending on the down payment amount.

5 years ago

I think the only difficult part about this is actually finding a fourplex worth having. Being in the Atlanta market the only fourplexes I’ve ever seen come available are in pretty rough neighborhoods.

5 years ago

We tried in Alameda in early 2009 but we couldn’t get any because it was all CASH. Even then, people paid cash and we didn’t have any available. We tried for this property 537 Central Ave, 94501. Went for $540K. Now, one bedroom are currently renting for $1500-$1800.

5 years ago

Very true. 4 families are a beautiful thing and so was 2012. Time travel hasn’t been invented yet, so we need to adjust the plan a bit. My 2 family that I bought in 2012 in a great area actually profits more than the 4 family I bought in a decent area in 2013. However, there is strong potential for rent increase on the 4 family. It consists of 2 – 1 bed units and 2 – 3 bed units. Unit 1 – 1 bed : $1200/month Unit 2 – 1 bed: $800/month(much better condition than unit 1) Unit 3… Read more »

5 years ago

It’s an interesting example because I heard a similar story of such a deal recently. It was a quadplex in a community of 20 or so quadplexes, sold for around $500k at the low. Today, that quadplex is worth >$1M and each unit is renting for $1.5k. There was some renovation required though, but still can’t complain. During the downturn, you would have had a hard time getting a loan with only 25% down. Also, not sure if this was already mentioned, selling the quadplex after living there for 2 years would only give you a tax benefit on 1/4… Read more »

Rob Jones
5 years ago

I know real estate business can a great way to increase my income so i want to get in right way. thanks

5 years ago

I wish that it were so easy to get into that period when you’re moving towards planning for financial independence! It takes a long time to grow up enough to take responsibility of our debts and get financial affairs in order much less planning for investments and money-making activities to last you into retirement!