Should I Live in My Investment Property? 5 Pros & Cons of Owner Occupied Rentals

Should You Live in Your Multi-Family Home?

Seasoned experts and brand-new real estate investors alike recognize the allure of owner-occupied properties. These are typically multi-family homes, such as duplexes, triplexes, or quadplexes. Living in one of the units of your multi-family home offers a unique opportunity to secure a valuable property and significantly offset living expenses through rental income.

As ideal as this proposition might sound, it's not without its pitfalls. The advantages can ease financial burdens, but it might sometimes result in unexpected expenses and a higher-than-anticipated time commitment. Should you live in your multi-family home? Weigh the pros and cons to decide if owner occupancy is right for you.

Advantages of Owner-Occupied Rental Properties 

Owner-occupied rentals present a series of advantages that can make the prospect of homeownership both accessible and financially savvy. First and foremost, these properties often qualify for lower down payment requirements. Beyond the initial investment, residents can significantly offset their monthly living expenses by generating rental income from other units or spaces within the property. On top of that, investors capable of taking on the commitment of being a landlord will appreciate the on-site convenience. 

 Financing an Owner-Occupied Rental in Canada 

Understanding the financing nuances between owner-occupied and non-owner-occupied properties can lead to significant savings. For those looking at buying an owner-occupied property, the financial barriers to entry are notably lower. 

Prospective buyers can purchase with a mere 5% down payment on the first $500,000 of the property's value. For any portion of the property's value exceeding that $500,000 mark, a 10% down payment is required. Contrast this with non-owner occupied properties, where the financial requirements are steeper. These investments necessitate a 20% down payment, regardless of the property's value.

An additional benefit for those eyeing owner-occupied investments is the allowance to bolster their mortgage qualification criteria. Buyers can utilize up to 50% of their projected income from the property to assist in qualifying for a rental mortgage. This can increase the purchasing power of potential buyers and make higher-value properties more accessible.

Reduce Living Expenses, Speed Up Your Investing Goals 

One of the shrewdest moves an investor can make is purchasing a duplex and renting out a part of it. This strategy paves the way for homeownership and provides an efficient route to financial growth.

By living in one unit and renting out the other, homeowners can use the rental income to significantly offset their monthly mortgage payments. This can transform a hefty mortgage expense into a more manageable figure, depending on the rates in the area. In many scenarios, the income might cover half or more of the mortgage payment, which is especially beneficial for those worried about the affordability of homeownership.

Every payment made towards the mortgage contributes to building equity in the property. As equity grows, homeowners gain a more significant ownership stake in the property. This can be a powerful asset for future financial endeavours, whether refinancing, further investing in real estate, or leveraging it for other financial needs.

 The Perks of Being an On-Site Landlord: Proximity and Proactiveness 

Living in Your Rental Means You Can Quickly Respond to Issues

One of the often-underestimated advantages of owning and living within a rental property is the oversight you have as an on-site landlord. This closeness offers several benefits. Living on-site ensures you're just a stone's throw away from addressing maintenance concerns. A quick reaction time can enhance tenant satisfaction and reinforce trust.

Acquiring a few DIY repair skills can be a game-changer. With the property so close, you can easily tackle minor repairs or chores without waiting for a professional or scheduling inconvenient appointment times. By staying on top of these regular tasks, you can prevent minor issues from evolving into significant, costly problems in the future.

Sometimes, tenants might not recognize or report emerging problems because they don't see them as urgent or are unfamiliar with the signs of more significant issues. As you're on-site, your familiarity with the property allows you to spot these concerns early on. Whether it's a water leak, structural concern, or a potential safety hazard, living on-site lets you catch and address these problems before they escalate.

In cases where a situation requires expert intervention, your on-site presence means you can alert the necessary professionals promptly. This ensures the issue is handled before it deteriorates, often resulting in cost savings by averting more extensive damages.

Disadvantages of Owner-Occupied Rental Properties 

Being on-site, while offering many advantages, also comes with its unique set of challenges. However, if you learn how to establish a functional work-life balance and watch your finances, you can easily overcome the disadvantages of owner-occupied properties.

 Living in Your Rental Property Strains Privacy 

When living on-site, one of the biggest challenges encountered is the erosion of privacy. Essentially, you're sharing your living space with tenants, and this proximity can sometimes blur the lines of personal and private spheres. Unlike landlords who manage from a distance, being on-site means you're more accessible. While this can mean swift resolutions to problems, it also means you're constantly "on-call." Tenants might overstep, approaching you during your downtime.

This continual accessibility might make some tenants feel entitled to your time and attention beyond what might be considered reasonable. Therefore, setting appropriate boundaries becomes paramount. While you want to be available and attentive to your tenants' needs, it's crucial to establish clear guidelines regarding when and how they can engage with you, ensuring that both parties can coexist respectfully.

It Can Be Challenging to Buy a Second Home 

Many people who choose to live in their owner-occupied homes do so with the intention of purchasing a second private residence soon after. This can be attainable, but the journey may include unexpected complexities.  

One primary consideration is property appreciation. A property's value doesn't always rise predictably or swiftly, which means when it's time to sell and invest in a single-family home, the expected equity might not be there. This could impact the funds available for the down payment on the next house.

Additionally, there's the matter of financial optics. Even if you're earning rental income, owning a rental property can inflate your debt-to-income ratio, making lenders more cautious. A higher debt-to-income ratio could lead to less favourable mortgage terms or even challenges in securing a mortgage for the next home.

This underscores the importance of strategic financial planning and keen market insight for those transitioning from an owner-occupied rental to a single-family residence.

Is Living in Your Multi-Family Property Right For You? 

Whether you’ve converted your home into a duplex or bought an existing multi-family home, the benefits of owner-occupied rentals can be substantial. From offsetting living expenses with rental income to enjoying the conveniences of on-site management, it’s easy to see why it’s a popular idea. However, like any significant decision about real estate investing, it's accompanied by challenges.

The decision ultimately comes down to its alignment with your long-term goals, financial comfort, and personal boundaries. As you weigh the pros and cons, evaluating not just the immediate returns but also the broader journey of homeownership and investment is essential. 

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