The ultimate purpose of investing in residential real estate is to make money and build wealth. What if I told you that you can live for free and still make money off your residential real estate investment? How? Simply by following one of the best real estate investment strategies out there: the owner occupied multi family real estate strategy. In this blog, I will provide you with everything you need to know about finding, financing, and owning an owner occupied multi family investment property.
What Is an Owner Occupied Multi Family Property?
In real estate terms, an owner occupied multi family property is an investment property where the property owner lives on-site; the rental property doubles as their primary residence. In other words, this strategy involves buying a multi family home for investment and living in one of the units while renting the others out.
The classification of “owner occupied multi family” is important to know as many lenders set it as a requirement for certain mortgages. A residential multi family property is one that has 2-4 units. A multi family property with 5 units or more is considered a commercial property and therefore requires different treatment when it comes to financing. To obtain the benefits of owner occupied multi family financing, an investment property has to have between 2 and 4 units.
Investing in owner occupied multi family properties is often referred to as house hacking. Basically, it’s a way of living for free in a multi family home where the rental income covers all of your housing expenses. While buying an owner occupied multi family rental does not necessarily mean succeeding in house hacking, it is definitely worth trying as you may be able to live for practically free.
Why Buy a Multi Family Property as Your Primary Residence?
The main advantage to consider house hacking is that, if done right, you will be able to save a lot of money by neither paying rent nor mortgage. In other words, having an investment property that pays for itself in addition to saving on the expenses of your own housing allows you to achieve a return on investment at a higher rate.
In addition to living in the property for free, investing in an owner occupied multi family property brings with it other advantages, common to multi family investments:
Explore different rental strategies
Buying a multi family property with 2-4 units allows you to try out which rental strategy is more profitable for you. For example, when buying an owner occupied multi family with 3 units, you can rent out one unit following a long term strategy and use the other as an Airbnb rental. This allows the real estate investor to determine which is the best rental strategy for the multi family rental.
Learn which rental strategy is best for your multi family property with our Investment Property Calculator.
Easier property management
Being close to your tenants will never leave you wondering about the state of your investment property. With the landlord being right next door, the tenants will more likely treat the property as if it was their own. Moreover, if you decide to rent one of the units as an Airbnb rental, being next door saves you the trouble of traveling to the property each time a new tenant arrives or leaves.
When compared to other types of investment properties, multi family rentals are regarded as less risky due to the fact that you can still make money even if one of the units goes vacant, unlike a single family investment property.
Attractive financing options
Here comes the most interesting part of owning an owner occupied multi family property. Mortgage lenders offer loans with favorable interest rates and low down payments for primary residence investment properties. So, what are your options when it comes to financing a primary residence investment property?
Financing an Owner Occupied Multi Family Investment
Buying a duplex or multi family home with 3-4 units gives you the advantage of financing the investment using one of the following owner occupied multi family loans.
#1. FHA Loans: To be eligible for FHA loans, the investment property has to be owner occupied. The main advantage of an FHA loan is the low down payment requirement of 3.5% if your credit score is 580 or higher. Otherwise, a 10% down payment is required. In any case, it is much lower than the 20% mortgage lenders ask for. Lenders do, however, require mortgage insurance premium for an FHA loan.
#2. VA loans: A US Army veteran with a credit score of 620 or more is eligible for a VA loan which can be used to finance an owner occupied multi family investment with no down payment. The primary residence property can have up to 4 units.
Finding Multi Family Homes Using Mashvisor
Finding a duplex investment or a multi family home for sale is made easier using Mashvisor’s heatmap tool. With this tool, you can filter the neighborhoods in the city of your choice according to listing price, Airbnb or traditional rental income, Airbnb or traditional cash on cash return, and Airbnb occupancy rate. Depending on your investing preferences and how much you want to pay or want to earn, the heatmap analysis tool is the greatest way to find a neighborhood with profitable investment properties.
The next step is performing a real estate investment property analysis to make sure that you choose an owner occupied multi family rental that satisfies your investing needs. Mashvisor’s rental property calculator is your best friend when it comes to crunching the numbers. Using machine learning algorithms that analyze the investment property and its location, the rental property calculator will provide you with exact calculations of the rental income, cash on cash return and net operating income for both traditional vs Airbnb investment strategy.
To learn more about how we will help you make faster and smarter real estate investment decisions, click here.
The Bottom Line
Buying a multi family home and living in one of the units can be the best real estate investment strategy. This is because it opens up doors to better financing options and it can allow you to live for free in your own home. And with all the money you manage to save up, you can invest it into another rental property or eventually move out of the multi family home, rent out all the units, and buy your dream home!