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

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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… 😉

{ 25 comments… add one }
  • The StoicNo Gravatar January 2, 2015, 1:47 pm

    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 or fourplex might be the best option to pursue…

    • FI FighterNo Gravatar January 6, 2015, 7:49 am


      Yes, you gotta love the economy of scales that come with multi-family housing. Not to mention multiple streams of income flowing in, which can help mitigate risk when a given tenant doesn’t pay. Looking back, I wish I would have picked up a few before the most recent run up in prices.

      Best of luck in 2015! Hope you land something good!

  • KalleNo Gravatar January 2, 2015, 3:27 pm

    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 but I wonder why you think you have to have so much cash to become FI? I believe that the livingexpences in Sweden is higher than in the states and yet i feel that i can become fi with less cash.. is there something that I might have missed?

    I believe that I can live a great life here in Sweden with about $600-700k in index funds (and then withdraw 6 % per year).. I think I have a safety margain considering that the index funds on average increase in value by 10 %.
    Any ideas?

    Thanks again for your very nice blog. I went back to work today after the holidays and it felt terrible.. nice to have a goal! 🙂


    • FI FighterNo Gravatar January 6, 2015, 7:52 am


      Thanks for the kind words! In regards to hoarding cash, yes, I think that’s very important for anyone in my position. I am currently invested in 7 rental properties, or 10 units, so expenses due to capex/maintenance can creep up at any given time. So, reserves for not only that, but for my own personal expenses/emergency fund are also necessary.

      If I had to venture a guess, with 7 properties, I would say $100k is the number needed to feel comfortable before declaring early FI.

      Yes, I’m a huge fan of index funds, and $600k-$700k would be more than enough for me. I’m hoping my blend of index funds and property will deliver similar type of returns over the long haul.

      All the best!

  • MichelleNo Gravatar January 2, 2015, 5:50 pm

    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.

    • FI FighterNo Gravatar January 6, 2015, 7:54 am


      That’s a great idea! Many people have created wealth and financial freedom following exactly that model.

      Hopefully you’ll be able to find one locally where the numbers work. In the Bay Area, it’s pretty tough!


  • Mr. Captain CashNo Gravatar January 3, 2015, 3:04 pm

    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.


    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 of running out of money given previous market performance. Of course market performance is continuously changing so just because over the last 100 years you would have not run out of money does not mean in the next 100 years you wouldn’t given the following example.

    Hope that helps and I believe that is why FI Fighter wants to have so much cash before he declares himself financial independent.

    Mr. Captain Cash

    • FI FighterNo Gravatar January 6, 2015, 7:57 am

      Mr. Captain Cash,

      Thanks for the clarification and examples using firecalc. I ran some sims a few years back, and I believe at the time my expenses only required around $500k to $600k… So, getting to $700k in investments for me is just icing on the cake.

      I’m a huge fan of both stocks and real estate. If leveraging using stocks was as friendly as real estate, I would probably go that route. With interest rates as low as they are today, real estate becomes almost a no brainer, provided you can locate the right cash flowing deals.

      All the best!

  • Even StevenNo Gravatar January 3, 2015, 5:34 pm

    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 StevenNo Gravatar January 6, 2015, 7:15 am

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

      • FI FighterNo Gravatar January 6, 2015, 8:06 am

        $686.63 (monthly cash flow) + $2,148.37 (lack of monthly mortgage) = $2,835

        $2,835 * 12 (yearly) =$34,020

        $34,020/$600,000 =5.67%

    • FI FighterNo Gravatar January 6, 2015, 7:59 am

      Even Steven,

      We are both definitely on the same wavelength there! Congrats on the triplex, I’m sure you are loving that investment decision 😉

      REI is one of many paths that can lead to early FI. With the right moves, it’s perhaps the quickest route as well.

      Take care!

  • No Nonsense LandlordNo Gravatar January 4, 2015, 7:33 am

    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.

    • FI FighterNo Gravatar January 6, 2015, 8:02 am


      You are an inspiration! I’m sure there are many freedom fighters out there who would love to follow in your footsteps and that great business model.

      Getting the first few units was probably tough, but I’m guessing the cash flow really helped you snowball the progress and help acquire more units in a timely fashion.

      At this point, it’s game over and you’ve won. You are working a job you no longer need so you are in the driver seat. Early FI is available for you whenever you want it.

      All the best!

  • JamesNo Gravatar January 4, 2015, 10:30 am

    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!

    • FI FighterNo Gravatar January 6, 2015, 8:10 am


      That window of opportunity didn’t last for very long. I got in a little late, but even when I did, it was almost like if you blinked you would have missed it.

      In today’s environment, buying in the Midwest is a lot more affordable since those properties experience zero appreciation (relative to areas like Bay Area).

      In a downturn, yes, I believe it is most prudent to purchase assets that have lost a ton of value and are most likely to recapture that on the upswing. If we are talking about stocks, there’s no reason to purchase AT&T or Verizon when the economy goes south… Better to purchase growth stocks that will appreciate significantly on the rebound like AAPL or GOOG.

      If I’ve learned anything, it’s that you make a killing on appreciation and not through drip cash flow.

      All the best!

  • Midwestern LandlordNo Gravatar January 4, 2015, 3:59 pm

    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 to play. The first one can be bought via FHA financing. However, the additional buildings will take 25% down plus reserves. This will keep a lot of people from being able to do this. As they say, it takes money to make money.

    • FI FighterNo Gravatar January 6, 2015, 8:15 am

      Midwestern Landlord,

      Definitely, the low interest rates we have available to us make buying property extremely compelling.

      Yes, these type of cash flow deals don’t work in the Bay Area anymore, but I agree that they can still be found in the Midwest and similar areas in the country.

      Good point on the cost savings made possible through self-management. That only reinforces what a great opportunity we had in the Bay back then, b/c you could shell out 10% each month and still make a ton of cash…

      It’s definitely easier to make money when you already have money. FHA is a tremendous opportunity or those who have very little money to get started in this most lucrative game. A lot of people used these 3.5% downpayment loans and re-fi out a few years later to get the bulk of the capital they needed to fund more investments. As they say, the rest is history after that.

      If I could do it over, I would have bought a fourplex using FHA loan.

      Take care!

  • TylerNo Gravatar January 4, 2015, 7:09 pm

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

  • kbNo Gravatar January 5, 2015, 6:30 am

    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.

  • MaryNo Gravatar January 5, 2015, 11:08 am

    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.

  • JPNo Gravatar January 7, 2015, 6:37 am

    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 – 3 bed: $1700/month
    unit 4 – 3 bed: $1250/month

    Expenses: $3800/month

    When I grow a set and decide to match the rents from one side of the house to the other, I will get an additional $850/month or $10k a year!! Also, the rents in this area will be increasing over the next few years with development going in. Lastly, when I refinance out of the mortgage insurance when my equity gets to 25%, my monthly payment will be $600 lower/month. Combine these changes and I could go from the current profit of $1200/month to a profit of $2650/month.

    Once again, I’m the @#$hole who keeps talking about the potential in the Boston area. I’ll stop now. I just checked the bay area multi-family listings and would be at a loss if I lived there. Anything within an hour from you that could cash flow?

  • HedgehogNo Gravatar January 7, 2015, 11:22 pm

    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 of the quadplex, unless you occupied more than one unit.

  • Rob JonesNo Gravatar January 12, 2015, 10:58 am

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

  • MarcioWilgesNo Gravatar February 1, 2015, 10:37 pm

    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!

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