Minimum down on a house hack fourplex, or 10 percent and a payment that actually clears

The small building owners who get in trouble rarely got there by running short on a roof. The common pattern is a payment that was tight in month one and then a unit that sat for seven weeks in January. Your $300 gap in version A grows the moment the 1/1 goes vacant. It becomes $300 plus $850, plus paint and a lock change, for however long the unit sits. In a normal year on a fourplex, budget one full turn, and turns in older buildings run long because you find things. So the lean is B, with the caveat that $25k of reserves against a 40-year-old fourplex is thin too. If there's a version at 7 or 8% down that gets you a payment near breakeven and $40k left, that's the one worth having quoted.

@dpatel_re the piece I'd nail down before comparing payments is whether that FHA mortgage insurance can come off at all on your loan, or whether it rides the full term. I've heard both answers depending on the down payment tier and when the loan was written, and it changes version A by a real amount over ten years. Ask your lender to put the MI duration in writing next to the payment quote, because a $300 gap that never improves is a different deal from one that shrinks in five years.

Also does your conventional quote hold at 10% on a four unit, or was that priced for a duplex? The pricing I've seen gets worse as unit count goes up.

The question to ask is what the extra $35k earns if it does not go into the down payment. You are comparing it against roughly $590 a month of payment reduction, and $590 a month annualized against $35k is a return most investors would be pleased with almost anywhere else they could put the money. That math argues for B harder than the vacancy story does. What it ignores is that $35k in the down payment is illiquid and $35k in the account can also pay for a lawyer when a tenant goes bad, or for four months without a job. There is no clean way to price that reserve, and anyone who claims one is guessing.

A forty year old fourplex means four water heaters on staggered clocks, one roof, and probably a service panel per unit that somebody amateured in 1998. Enough of those walls have been opened over the years to say the version with more cash in and lower leverage is the one an experienced operator sleeps through. @tonyv88 vacancy is a cash flow timing problem, while a failed sewer lateral is a $12k check. Covering $300 a month out of pocket for two years beats financing a lateral on a credit card. @dpatel_re, get the sewer scoped before locking in a down payment. A clean result drops the reserve requirement significantly and makes the lower-down-payment version look better than it does right now.

Every building has a number it's going to take from an owner in the first two years, and the only question is whether the owner has it. Operators who run repair and turnover crews will say the owners who call asking to wait until the 15th are usually the ones who put every dollar into the down payment. Go with the option that leaves more cash on hand. But price the turn cost honestly, $1,200 in materials plus labor is not what a real turn costs on a 2/1 with old flooring.

Running the numbers with 5% vacancy and 8% for repairs and capex off gross rents, version A comes out negative about $700 a month all in, and version B negative about $110. Neither is free housing, which tracks with what has been said here. On a 24 month horizon version A costs about $17k out of pocket and leaves $60k in liquidity. Version B costs about $2.6k and leaves $25k. So A is really paying $14k over two years to hold an extra $35k of liquidity. Framed that way, the middle option, 7 or 8% down if the pricing exists, is the stronger pick, which is what @tonyv88 said. The assumption doing all the work is the 8% repair line. At 15% on a building this age both versions get ugly, and the answer becomes a different building.

Worth checking whether the FHA mortgage insurance stays on for the life of the loan, because if it does, the real comparison for that scenario is a refinance at whatever rates exist a few years out. That is an assumption worth pressure testing rather than accepting on faith.

@raj_mehta14 yes, and that's the honest weakness in version A. "I'll refi out of the MI" is a plan that depends on a rate you don't control.

@dpatel_re my scope creep story is short. Budgeted $9k to make a vacant unit rentable in a building about the age of yours, opened the bathroom floor, found the subfloor gone under the tub, ended at $23k because once the wall was open the wiring in it wasn't something I was going to close back up. That was one unit. You have three you don't control the condition of yet.

Voting for the reserve. Not because the payment doesn't matter, it does, and @tonyv88 is right that a long vacancy in a tight-payment building is how people lose these. I just think the failure mode I've personally watched happen more is the owner who couldn't fund the repair that would have let him rent the unit at all.