Buying Multi-Family Owner Occupied Real Estate

buying multi-family owner occupied real estate

Folks frequently query about how to embark on investing in property. There are various paths to take – get a tiny investment property, collaborate with different capitalists in a larger endeavor, join forces with an experienced developer, get a stake in a REIT, and more. One of the most preferred approaches for fresh financiers is to acquire a multi-family residential or commercial property to inhabit as the owner.

Have you ever wondered about buying multi-family owner occupied real estate? This is an investment option that may be harder to understand, regardless of if you are a new investor or an experienced one. It’s your good fortune that we have a list of advantages and disadvantages to assist you in ascertaining if this investing strategy is suitable for you. If you are looking to make your mortgage payments smaller, get better loan choices, and facilitate the management of your property, then investing in multi-family real estate would be an outstanding investment for your portfolio. Alternatively, if you don’t have any interest in managing people and situations that come with renters, it may be best to avoid this method. With the amount of paperwork, grievances, and potential disagreements it may not be the most ideal choice.

Starting off as a real estate investor or first-time homebuyer can be difficult, and for some, buying a duplex, triplex, or even a “four-plex” may be appealing. Though, this option comes with both advantages and disadvantages.

What Does Owner Occupied Mean?

What Does Owner Occupied Mean
What Does Owner Occupied Mean?

The label “owner occupied” implies that the person who owns the property is also residing there as their primary dwelling. An investor who buys a multi family property and intends to reside in one of the units while renting out the others is categorized as “owner occupied”. Nonetheless, many wonder what the necessary length of time is to fulfill the designation of “owner occupied”, and this question has no definitive answer. In order to qualify as an owner occupied home, the property must fulfill two criteria: it needs to be the primary house of the owner and they must remain there for a period of at least two years. Investors should be aware of this difference, as numerous types of mortgage loans necessitate that the borrower resides in the property.

Owner Occupied Multi Family Real Estate Benefits

Owner Occupied Multi Family real estate benefits
Owner Occupied Multi Family real estate benefits
  • You can use your monthly cashflow to pay the property’s mortgage.
  • Lenders typically offer more favorable loan interest rates to those purchasing a primary residence.
  • Property management is easy!

Financing being simpler, property control being straightforward, and being able to enjoy living in an income-generating home are all explanations why having a multi family residence for your own use may reward you and your business. Starting to invest in property can be an advantageous move for novices as it gives them the opportunity to gain experience with managing a rental by having a hands-on teaching session. Learn more by understanding the following positives.

Inexpensive Investment

Getting a duplex as your first real estate investment endeavor and living on one side can be incredibly advantageous. If you’ve located a worthwhile property and the rental market is booming, the income from any further tenants could wholly cover the mortgage, giving you the opportunity to live without having to pay rent until the property is paid off.

If you are a novice when it comes to buying a home, you need only to come up with 3.5 percent of the cost as a down payment, which should not be too difficult if you have been setting money aside. Your prospective rental income can also be taken into consideration by the lender to get you a larger loan. You can begin straight away by determining if you qualify for pre-approval. When you are prepared to buy, you won’t encounter any obstacles.

Owner Occupied Multi Family Financing

Owner-occupied multifamily properties with 1-4 units can be much simpler and more appealing to acquire financing for rather than individual family homes, which are solely meant for investing in. Purchasing a home may be easier with a lower initial expenditure, potentially no money down, attentively set up interest rates, and less complicated credentials for qualification.

Property Management Ease

I guarantee that you will never be left perplexed about the details of your real estate investments. You will be located directly adjacent, ideally situated to gather rent payments and make sure that your real estate is being attended to properly.

Investing in passive income can create a path to financial security and freedom, but remote management of any investments may add complexities. If you reside in the property immediately beside yours, you’ll always know that it is being kept in good condition. When tenants understand that the landlord resides nearby, they are more likely to maintain the premises as if it was their own personal residence.

Owner Occupied Multi Family Real Estate Drawbacks

Owner Occupied Multi Family real estate disadvantages
Owner Occupied Multi Family Real Estate Disadvantages
  • Tenants could be difficult to work with.
  • It can be hard to find prospective renters.
  • Conflicts of interest may occur.

Owning an investment property that you occupy has its advantages, yet there are also drawbacks that must be taken into account. This type of investment is a good way to start a career in real estate but is not risk-free. These obstacles will either make you to abandon your goal or succeed. Figure out if you are ready to progress.

Tenant Complaints

At the same time, you may be close to the renters, making it easier for them to make a complaint no matter what time it is. Regrettably, this can lead to higher repair and maintenance fees and be really irritating.

An measure to steer clear of this issue is to set out rigorous regulations to occupants in relation to the occasion and way in which they can report upkeep requests. Ensure that people respect your time by setting up usual business hours and possibly a mail-handling system.

Renter Restrictions

A lot of individuals seeking rental properties are unlikely to be interested in places where the owner is in residence. They aspire to have the ability to throw a racket, hold celebrations, and be permitted to be overdue in their rent repayment (understanding that this would lead to a penalty fee). To attract prospective renters, showcase the various features and services that your house has to offer. What makes your property better than your neighbors? Is your rent price competitive? Will you offer to pay for utilities? It is essential to implement a thorough selection procedure, and to be candid and straightforward with all applicants. Think about the emotions they might be experiencing and make clear that you do not intend to be overly controlling. As long as your property has great features, people will be interested in renting it.

Conflicts Of Interest

Despite locating ideal occupants, difficulties may manifest. Forming strong bonds with the people who are leasing your property can make it challenging to evaluate your investments in a strictly business sense and make decisions based on logic alone.

Nobody wants to be taken advantage of by those they have leased a home to or have a strained relationship with someone close to them. Avoid this predicament by either separating yourself from your tenants or selecting someone who you have absolute faith in (possibly a close buddy or family member.) Ensure the new tenant comprehends your role in the agreement. Be open and honest at the beginning in order to prevent any issues of conflicting interests.

How to Finance Owner Occupied Multifamily Homes

How to finance owner occupied multifamily homes
How To Finance Owner Occupied Multifamily Homes

The most attractive financing terms can be accessed by investors in owner-occupied multifamily properties. Most lenders require a loan-to-value ratio of 75%, which means the purchaser must come up with at least 25% of the purchase price or appraised value. If the buying price is higher than the appraised value, the individual must pay the difference but still put in 25%. We made a demonstration early on that presented a huge amount of money.

It can prove to be quite challenging to raise the necessary funds for a 25% down payment when attempting to purchase a rental property. The key is getting over that hurdle.

That’s where owner-occupied multifamily investing comes into play. In certain cases, you can be allowed to have a down payment as low as 3% when you own a home. Rates of interest are usually lower for those who live in the property they own, usually by a margin of 0.5%. Rather than having to pay 25% of the purchase price upfront and getting a 5% interest rate, an owner-occupant could make a 3% down payment and qualify for an interest rate around 4.25%-4.5%. It might not appear to be much, but all those savings count.

Occupant owners can access a range of financing options to invest in multifamily dwellings. The FHA loan program is the most frequently utilized one, with the US government providing the backing. The Federal Housing Administration (FHA) dictates that the home must be the dwelling place of the purchaser, and those who apply to buy can pay as small as a 3.5 percent deposit if their credit score is at least 580. People buying homes with an FHA loan and a down payment of less than 20% must fund private mortgage insurance (PMI) monthly, which can cost a few hundred dollars. PMI is essentially a form of protection for the lending institution as it lends out such a large amount of money in relation to the appraisal value.

It was indicated that it is possible to make a down payment of as low as 3%. Anyone contemplating a purchase of property for both owner-occupancy and for investing should consult their local banks for advice. Numerous states have similar initiatives to the FHA for first-time residence purchasers, with much more benefits for the buyer. In certain areas, a “soft second” mortgage plan exists. The financial institutions provide the possibility to receive two credits on a house owned by the borrower; the first one is up to 80% of the worth of the property whereas the second is up to 17%. The state provides the bank some kind of safety measure with the “soft second” loan. These types of plans generally offer significantly reduced loan costs, with rates typically less than 4%, and can be set up without having to purchase mortgage insurance. These plans are usually restricted based on income, meaning that you qualify for the package if your earnings are under a certain limit. In order to be eligible for this program, your yearly earnings need to be less than a certain amount. This is excellent news for younger individuals or those with the potential to make greater money in their chosen profession as they progress in it.

Programs are available which provide full funding or no money down. The Veteran’s Administration has a convenient loan program that permits current service people or veterans to buy a property for their own use and residence with no initial payment needed, providing they have a credit rating of at least 620.

Those investing in multifamily housing who occupy their own dwellings have the option of obtaining standard bank loans. Many will require the purchaser to give a minimum deposit of 20% or charge Private Mortgage Insurance (PMI) until the loan reaches an 80% Loan-to-Value (LTV) ratio. You should consult with your local banker to get the accurate details on the changing qualifications and conditions associated with these different forms of loans.

Is an Owner-Occupied Investment Strategy Right for You?

Is an owner occupied investment strategy right for you
Is An owner Occupied Investment Strategy Right For You

It is a wise choice for a novice investor to purchase an owner-occupied multifamily residence as their initial investment in rental real estate. It is widely considered to be wrong that the owner must remain living in the property forever. That’s not the case. You can purchase a multifamily property to live in and then move on after a certain period of time to your next investment opportunity such as an owner-occupied multifamily. This also has tax advantages. For example, if you are planning to put your house up for sale and its worth has gone up drastically, you may be eligible to receive a capital gains decrease of up to $250,000 (or a combined $500,000 for married couples) if you have occupied the residence for three out of the past five years, in the portion of the abode in which you habitated.

It is clear that putting money into multifamily projects which are owned by you has numerous advantages, as listed above. Yet this approach isn’t for everyone. Take into consideration the advantages and disadvantages, particularly whether or not you have the capacity to take on the role of a landlord. Doing it is not simple, but it can be advantageous in the long run.


Someone who is contemplating investing in a multifamily home that they intend to inhabit should begin their research. What are multifamily homes selling for in your area? What are the potential rental prices for the units you are interested in leasing? What effect would this have on how much you could afford to purchase? Are you prepared to put both time and energy into taking care of a property, and how much maintenance would that require?

Before you consider entering a purchase and sale agreement to become a landlord through FHA, soft second, or VA loan programs, the banks may require you to participate in a “landlord training” program so that you are aware of all your legal obligations.

It is essential to think of when determining if one should buy an owner-occupied multifamily property for investment in real estate.

In the context of us and how we look at it, going this route for our first property, whether it was an investment property or not, this would have made sense and worked out financially.  We purchased our first property roughly 20 years ago and lived in that house for a little over 2 years.

Not only would that have potentially allowed us to live there with the majority of the mortgage paid for at the time, but it would have allowed us to take advantage of inflation and appreciation over 20 years time.

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