My first purchase was a two-family home where I lived with my roommate on the first floor and rented the second floor. The loan required little down payment since I intended the purchase as my residence and not strictly as investment. It lowered my monthly expenses and it allowed me to move on to my next venture without having to consider selling.
Purchasing a multi-family investment as an owner occupant makes sense for so many different situations. Consider these examples. I once worked with a family who wanted to live in a particular neighborhood but the cost of single family homes in the area was out of their reach. They bought a two family and rented one of the apartments for several years until they built up their equity. Then when the time was right, they procured a construction loan and converted the two-family to single family home. I also worked with a young attorney whose job took him out of town about 50% of each month. He knew real estate was a good investment and he wanted to invest in his own property rather than help pay someone else’s mortgage. He purchased a two-family and secured a great tenant. That tenant not only paid the majority of his mortgage but kept the place safe while he was away. There is a retired a couple on my block that sold their original house and purchased a two-family. They moved 4 doors down and across the street. They didn’t want the upkeep of a big old city house but they still wanted all the benefits of a city neighborhood. And finally I just learned of friend who intends to combine her household with her mother’s. My friend wants to live close to her mother but not necessarily in the same abode. They are planning to purchase a two family where grandma can live downstairs. Multi-generational house-holds are on the rise and buying a multi-family allows for the extended family to share expenses and still have their own space.
An owner-occupant investment purchase also makes a lot of sense for someone who may not be able to commitment to living in one place for more than 2-3 years. I have had several clients fresh out of grad school looking to buy their first home. However, those first few years in the professional world can be a bit tumultuous. There could be new opportunities on the horizon like a new job out of state or possibly the merging of two households. Either way, purchasing a multi-family home is a great solution that allows the client a place of their own, an opportunity to start earning equity and creates a long term investment all at the same time.
If you purchase a two family home, you get all the benefits of home ownership and the flexibility to pick up and move without having to worry about selling your home. Add to that the fact that you will have an income producing asset that can become a cornerstone piece of your retirement plan and it’s a WIN/WIN/WIN.
Let’s consider a real world example:
It has a great floor plan with a large living room and dining room. Both units have retro kitchens with the original farm house sinks, lots of closet space and a 2 car garage.
An owner-occupant using an FHA loan would only need a 3.5 % down payment ($4546.5) which would make the monthly payments $1060.01. With your tenant paying $600/month for rent, your portion of the mortgage would amount to $460.01.
That’s is probably less the rent you are paying now! Can you go anywhere in this city and pay $460 a month for an 1100 square foot space with historic details, wood floors and covered parking?
So, is it time to stop paying your landlord and become one instead?
Let me know, there are more options than you may think.
(Other loan options apply and remember the larger down payment you have the lower the monthly mortgage!)