Agent told me the loan flips at five units. What actually changes?

Out where I'm looking, duplexes trade around $120k to $150k total and the problem isn't the loan box, it's finding two of them sold in the last year to make an appraisal work. Twice I've seen appraisers reach for single family comps and adjust, and the number came in low both times.

The count is the easy part. What I'd add is that four units under one roof usually means shared guts. One furnace or boiler, one water meter, one main line, one roof. So you get four rents and one very expensive failure point, and when that thing dies you don't get to fix a quarter of it. Ask for the age of the heating plant and the sewer line before you ask anything about rents.

@parcel given how you think about land, check whether the fourplex is a legal use or a grandfathered one. A grandfathered building that burns down can sometimes only be rebuilt to current zoning, which in a lot of towns means fewer units. That's an ordinance question and it varies town to town, but it changed how I read a couple of listings.

Adding the mechanics under @hollow's comp problem, because it's the part that sinks deals late. A 2-4 unit appraisal comes in on a different form than a single family, and it comes with a rent schedule where the appraiser states market rent per unit. Underwriting usually counts something like 75 percent of that market rent, not your actual leases, so a building rented $200 under market gets you less credit than you modeled, and a building rented above market gets you no extra credit.

On 3-4 unit purchases with certain owner-occupied programs there's an additional test where the property's net rental income has to cover the whole payment. That test uses the appraiser's market rents too. Duplexes are generally exempt from it. Get your lender to confirm in writing whether it applies to the file, because it's the single most common reason a fourplex pre-approval evaporates.

The five unit isn't automatically worse, it's priced differently. Commercial pricing keys off net income and a cap rate, so a five unit with weak rents can be cheap per door in a way a fourplex never is, since the fourplex is competing with owner-occupant buyers who pay on emotion and payment size. If you're a long hold buyer with cash, that spread is sometimes worth the commercial terms.

One risk nobody's raised: converting a legal fourplex to five units, say by finishing an accessory unit, can push you out of residential financing on the next refinance. People do that improvement and then discover the refi they were counting on doesn't exist at their old terms.

So if I understand the rent schedule point, the safest version is a fourplex where actual rents are already at or near market, because then the number the appraiser writes down matches what I'll actually collect? I was assuming under-market rents were the whole opportunity. Now I'm not sure whether I want that at purchase or a year later.