Minimum down on the fourplex or 10% and a payment that actually works

I manage a lot of small buildings for other people and the ones who get in trouble aren't the ones who ran short on a roof. They're the ones whose payment was tight in month one and then a unit sat for seven weeks in January.

Your $300 gap in version A isn't $300 when the 1/1 goes vacant. It's $300 plus $850, plus paint and a lock change, for however long the unit sits. In a normal year on a fourplex I'd budget one full turn, and turns in older buildings run long because you find things.

So I'd lean B, with the caveat that $25k on a 40-year-old fourplex makes me nervous 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 I'd want quoted.

@sextant 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 thing I'd ask is what the extra $35k earns if it doesn't go into the down payment. You're comparing it against roughly $590/month of payment reduction, which annualized against $35k is a return I'd be pretty happy with in most other places I could put money. That math argues for B harder than the vacancy story does.

What it ignores is that the $35k in the down payment is illiquid and the $35k in the account can also pay for a lawyer, a bad tenant, or four months of no job. I don't know how to price that and I don't think anyone does honestly.

Forty years old and four units means four water heaters on staggered clocks, one roof, and probably one service panel per unit that somebody amateured on in 1998. I've opened enough of these walls to say the $60k version is the one I'd sleep through.

@trellis I hear you on vacancy but vacancy is a cash flow timing problem and a failed sewer lateral is a $12k check. I'd rather cover $300 a month from my paycheck for two years than be the guy financing a lateral on a credit card.

One thing @sextant, get the sewer scoped before you pick a down payment. If it comes back clean your reserve requirement drops a lot and version B looks better than it does right now.

Running crews taught me that every building has a number it's going to take from you in the first two years and the only question is whether you have it. My small team does turns and light repairs for owners and the ones who call and ask if we can wait until the 15th are always the ones who put every dollar into the down payment.

A on the cash. 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.

I built this out on a spreadsheet because I can't help myself. Using your numbers, 5% vacancy and 8% for repairs and capex off gross rents, version A is negative about $700/month all in and version B is negative about $110. Neither one is free housing, which tracks with what people here keep saying.

On a 24 month horizon version A costs you about $17k out of pocket and leaves you $60k. Version B costs about $2.6k and leaves you $25k. So A is really "pay $14k over two years to hold an extra $35k of liquidity." Framed like that I'd take the middle option, 7 or 8% down if the pricing exists, which is what @trellis said before me.

The assumption doing all the work is your 8% repair line. If it's 15% on a building this age both versions get ugly and the answer is a different building.

Still learning this stuff, but if the FHA mortgage insurance stays on for the life of the loan, doesn't that mean version A's real comparison is a refinance you'd have to do at whatever rates exist in three years? That feels like an assumption nobody can quote.

@vellum 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.

@sextant 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 @trellis 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.