5 Pros & Cons to Living in Your Multi-Family Rental Property

Should You Live in Your Multi-Family Investment Property?

Those wanting to invest in real estate often consider purchasing a multi-family housing unit. These properties are an excellent way to yield a good ROI, mainly because owners can collect rent on two or more units in the home. Doing so enables them to pay their mortgages off quicker, gain faster equity, and advantageously position themselves financially to fund their next investment.

One of the decisions multi-family homeowners face is whether or not to maintain their own residence in the home. In the real estate market, this is known as house hacking. The idea of living as neighbors in the same home with tenants offers pros and cons, but many investors find it to be a profitable strategy. Keep reading for a rundown of the advantages, disadvantages, and other considerations owners should weigh before deciding to live in their multi-family property.

Pros of Living in Your Investment Property

The theory behind living in one's rental property is that owners can structure their housing payments to be quite low. (Or even free!) Living in the home themselves also offers keen insight into the rental process, home repairs, and other details landlords need to manage daily. This might be an excellent strategy for first-timers entering the commercial real estate market, setting them up for future success in property management.

Simpler Mortgage Payments

Suppose the multi-family home is the owner's primary residence and investment property. In that case, there's only one mortgage, which means less paperwork and logistics (as opposed to living in a single-family home and buying a second one as an investment property). Because an owner lives there, they can claim the house as a residential property and enjoy a portion of tax write-offs and other advantages. Always check with a tax expert to explain specifics because there are grey areas too.

It's important to keep in mind homes with more than five units aren't eligible for owners to enjoy these same benefits — even if the owner lives in the building. Larger multi-family homes classify as commercial property, and mortgage loans are subject to different rules and terms. However, homes with two to four units are simpler to deal with legally.

Owner-Occupant Financial Benefits

Owner-occupants get access to the more favorable lending options reserved for homeowners over investment property buyers, meaning they gain access to government-backed mortgages, along with lower interest rates and fees. Another benefit is the option to make a smaller down payment. Investment lenders typically require 20% down, but residential buyers can put down just 3% and sometimes less. Lenders also factor rental income into qualifying ratios, which can also result in tangible financial benefits.

Furthermore, living in a unit of a rental home enables owners to put out less money from their pocket. Essentially using the tenants' rent to pay the landlords' mortgage, any money exceeding the loan payment amount can be put towards maintenance, repairs, and other homeowner expenses – or can go back into the owner's bank account. In a triplex or quadruplex, rental income often quickly covers the entire mortgage, essentially giving the owner free housing.

While in theory buying a multi-family home is an investment, using it as a primary residency means more financial benefits than renting all units out to tenants.

Hands-On Landlords Have Easy Access

Landlord and Tenant TalkingWhile some owners prefer being off-site for various reasons, there are also many benefits for landlords who live on-site. For starters, it's convenient because they are already present in the event of an emergency or significant problem with the house. Living there can potentially prevent substantial issues because the owner can make snap decisions if they need to. Being off-site means tenants have to call their landlords and wait for them to respond or have assessments done.

Residing in the multi-family home also enables owners to generally keep an eye on things. Despite the most stringent screening, sometimes bad tenants slip through, but being on location enables an owner to quickly see if a tenant is disrupting neighbors.

Cons of Living in Your Investment Property

Looking at the advantages, it would be amiss not to acknowledge circumstances that might be potential drawbacks. Whether these are disadvantages is up to individual investors to decide whether or not it's advantageous to live in one of their units.

Multi-Family Homes Offer Less Choice in Location

One of the primary drawbacks of living in a multi-family home is it limits an owner's location options. Multi-family homes are less common than single-family homes and are typically in higher-density areas. Unfortunately, some cities, towns, and municipalities aren't zoned for these structures, making geographic options extremely limited.

Easy Access Goes Both Ways

Being accessible to tenants offers numerous advantages, but it's important to remember this access goes both ways. Owner-occupants should be sure they're comfortable in a multi-family environment, as these buildings inherently offer less privacy than a single-family home. Also, unhappy tenants can be more of a hassle when they're also next-door neighbors.

Not all tenant interactions are amicable and, if renting to a difficult tenant, owners are subjected to their complaints daily. Some tenants may feel it's within their right to run to their landlords constantly with even the smallest of issues that might be their responsibility to handle or would be a non-issue if the owner wasn't right next door. If problems, such as non-payment of rent on time or, worse, eviction issues, emerge, this could result in uncomfortable situations.

In a nutshell, landlords give up a degree of privacy when they decide to live alongside tenants. Owners ultimately need to determine if they're comfortable with this.

Is Living in a Multi-Family Home Right for You?

Many landlords successfully co-exist with their tenants as they would with any other neighbor, but this living arrangement is not for everyone. Investors often find multi-family homes make great investments, especially if they can gain lower-cost housing, helping them achieve a faster ROI.

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