Buying an Owner-Occupied Multi-Family

If you want to buy a multi-family property and live in one of the units yourself, there are a slew of things you will need to consider. 

Consideration 1: What are your long-term plans? 

For example, are you a young couple with plans to build a family and stay in the multi-family for a long time? For scenarios like this, it often makes sense to look at 2-families with a 2/1 bed/bath ratio and perhaps a 4/2 bed/bath ratio on the 2nd and 3rd floor.

This set-up will allow you to start living in the smaller unit so you can reduce your living expenses while obtaining higher rental amounts for the upstairs unit. Then, when your family expands you can move the larger unit and rent out the smaller one.

Or perhaps, you're an individual and your goal is to cash flow or live basically as close to free as possible. In that case, I would recommend focusing on a 3-family or 4-family to maximize rental revenue coming through the door.

Or maybe your goal is to increase the value of your property as quickly as possible. In that case you may want to fix up the unit you’re living in, rent it out, and then move upstairs and do the same thing in that unit. Then you can consider renting out both units and repeating the process all over again. 

Consideration 2: How will you share space with your tenants? 

As an owner-occupant, you are now renting out space to your neighbors. You’ll want to think carefully about the setup. For example, if you work from home and live in the first floor unit, and your upstairs tenants are running around at all hours of the day, you could be in for a world of hurt. So you’ll need to think carefully about which unit you’ll pick OR if you’ll only buy side-by-side style 2-families. 

There are also a number of other scenarios to think through. For example, if you have a large driveway do you want to consider sharing? That would likely increase your rental income but it might cause you more headaches. What about the yard? Do you want that for yourself or are you OK sharing? What about storage in the basement?

For many of the scenarios listed above, I find that new home owners haven’t thought these situations through. They often make on-the-fly decisions that they later come to regret. It’s extremely important that you consider at least some of the more common scenarios now, so you can avoid that regret.

Whatever you do, I am a firm believer that owner-occupying may be the best way to build wealth and increase your financial stability and housing options over the long haul. Not only do you have help in paying down your mortgage, but you are also going to receive significantly better financing terms from banks compared to pure investors - most likely saving 1-2% in rates, depending on where you look. At the price points we are targeting ($1M-$2M), that is a heck of a lot of savings over 30 years.

If you are thinking about going down the owner-occupant route and don’t know where to begin, give me a shout and let’s talk!