multi unit properties for sale in Maine

The financial benefits of owner occupied rental real estate

One way of home ownership is to buy a nice single family "starter" home, advance in your chosen career, save money, then upgrade to a nicer, larger home as your family grows. However, another choice that can accelerate the process and make you wealthier along the way is this: Buy a multi family home, like a duplex or 4-unit building, live in one unit and rent out the others. The financial benefits of this strategy vary, from just having your mortgage paid for by the tenant(s) to actually having all your living expenses paid for with some extra money left over. I've laid out some examples below which I took from my new book, Real Estate Rebel. These examples are typcial and very realistic. We have some multi unit properties for sale that would make very attractive owner occupied situations. In addition to 2 & 4-unit buildings, we even have two 7-unit buildings that would make fantastic places for an owner to live, and would result in zero housing expenses and even a positive cash flow each month.

Another benefit to owner occupied rental property is that you'll qualify for much better financing. Instead of putting 20-25% down and financing over 20 years with adjustments every 3-5 years, you'll qualify for programs with terms like 3-5% down, 30-year amortization, and 4-5% interest rate "fixed for life" loans. Rates and terms vary of course, but terms for owner occupied real estate will be comparable to what you would get buying your own home.

So, perhaps you want to be one of those savvy young people you read so much about, who buy a duplex or 4-unit and live in one apartment, rent the others out, and have the tenants pay their mortgage for them. How will the finances work out? What are the pros and cons? Let's use a 2-unit example as a template. Let's assume it has one 3 BR apartment and one 2 BR. you'll live in the 3 BR unit because you anticipate having a child in the near future, and you'll rent out the 2 BR.

Two-family owner occupied
  • Rental income from 2 BR: $650 per month or $7,800 per year
  • Tenant pays electric, you pay heat, water, and sewer.
Expenses: 8% each for vacancy, repairs and management (even if self-managed)
  • Vacancy $593 (based on national avg 8%)
  • Repairs $593 (based on national avg 8%)
  • Management $593 (based on national avg 8%)
  • Capex reserve $390 (5% set aside for "big" repairs like roof, heating system, etc.)
  • Sewer & Water $520 (avg for area)
  • Oil $2,800 (avg for area)
  • Insurance $700 (avg for area)
  • Taxes $1,750 (avg for area)
  • Mortgage $3,891
Total Expenses $11,830
Cash flow negative $4,030 per year or -$335.83 per month

So your total out of pocket for housing expense is about $350 a month. This includes mortgage, heat, hot water, insurance, taxes and repairs including a 5% capital expense savings account contribution for future big repairs. It also accounts for the other apartment being empty one month per year and factors in a $593 payment to you each year for managing the building (which is much easier when you live there!) If you want to make the numbers simpler, you can remove the management fee and bring it down to the bottom line. I like to keep it separate for reasons I talk about in my book.

Compare this with buying a single family home and living in it. Assuming you got a great 5% down, 3.5% fifteen-year mortgage, your payment alone would be $415 per month. Using "apples to apples" logic, let's use similar expenses and assume the following. The repairs and capex reserve are based on 8% and 5% of what your home would rent for if you weren't living in it. Vacancy and management can be taken out because you're not in the landlord business now, you're just a single family homeowner.

Single family home; owner occupied
  • Repairs $614
  • Capex reserve $417
  • Sewer & Water $520
  • Insurance $400
  • Taxes $1,200
  • Mortgage $4,980
Total Expenses $8,131 or $677.58 per month

Your monthly housing expense is double the cost living in a house vs doing an owner occupied two-unit scenario. Your total housing expenses with the duplex are less than just your mortgage payment on the house. Of course, there are pros and cons outside of price. You will be a landlord living on your own rental property, and your tenant will have much easier access to you. He can knock on your door instead of call, and every time he sees you walk out to your car to go to work, it might remind him of a minor issue that he'd never bother you with if you lived elsewhere. You'll have to set some boundaries. It's a very personal decision, but the math can be pretty exciting, especially when you're just starting out and every dollar counts.

4 unit owner occupied
Let's assume you decide to buy and occupy a four-unit vs a 2 unit. The building cost $100,000 and needed $20,000 work to be up to standards. (Notice I've priced the four-unit only 20k higher than the 2 unit. This is fairly typical in the B class (decent blue collar neighborhood) properties. As the number of units increases, emotion matters less and bottom line matters more in regards to price, and so the cost per unit decreases.) Let's assume there's one nice "owner's unit" then three 2 bedroom units each renting for $650. Tenants pay own electric, you pay oil, water, sewer. Let's also assume that because of owner occupation, you get great financing; the same as the owner occupied 2 unit in the earlier example. Oil, taxes and insurance will be a little higher, or course. Everything else is based on a percentage of gross rent. The analysis also includes a larger management fee to you of $1,722 per year.
  • Rent: $650 per month x 3 or $23,400 per year
  • Tenant pays electric, you pay heat, water, and sewer.
Expenses: 8% for vacancy, repairs and management (even if self-managed)
  • Vacancy $1,722
  • Repairs $1,722
  • Management $1,722
  • Capex reserve $1,076
  • Sewer & Water $700
  • Oil $6,300
  • Insurance $1,200
  • Taxes $2,000
  • Mortgage Payment $4,864
Total Expenses $21,306

Cash flow positive $2,094 per year or $174.50 per month

Phil from Duck Dynasty might look at this and say, "Now we're cookin' with peanut oil!" In exchange for putting yourself in the position of living on the same property as your three tenants, you've also put yourself in a position where all your basic housing expenses are 100% paid for. You also get paid $1,722 a year to manage a building you already own and live in, leaving you an extra $174.50 per month to spend, pay other other expenses, or invest elsewhere.

What I can tell you after almost six years of doing this is that the four-unit won't really be much more hassle than the 2 unit. If the heat goes out, you're going to have three tenants instead of one telling you the heat is out. The amount of work and stress does rise, just not in the same proportion as the increase in the number of tenants. Two tenants is not twice the hassle of one. Four is not twice the hassle as two, etc. You will get more calls, more hassles, more things to fix, but you'd be surprised how quiet it can be, especially if you keep up on maintenance, and get good tenants, and set clear, firm boundaries. We have forty-eight tenants. We receive, on average, two calls per week, always during regular business hours. We do take a lot of proactive measures to keep the phone quiet though. The challenge with an owner occupied four-unit is finding one that has a suitable owner's unit. We have one. It's a four-unit with all two-bedroom units on Pleasant St. in Waterville; but the biggest unit has a laundry room, enclosed front porch, bonus room and private, dry basement. There's also a 2-car garage on the property and gated, private back yard for children and pets.

However, these are not common. With most four units, the apartments tend to be equal. So if you're tempted to go this route, be open to the possibility of something even larger than a four unit. Instead of focusing on the size of the building, focus on the presence of an owner's unit as your first priority. You might not find a good owner's dwelling in the four-units you're seeing but there could be a massive and luxurious four-bedroom apartment in a five or six unit nearby. We have a seven-unit that has two huge three-bedroom apartments, (property 17b) one with a fireplace and 3 season porch, either of which could be comfortable, lifelong housing for a family of four. Additionally, we have a second seven-unit and eight-unit that would make suitable owner-occupied situations.(properties 169 & 28h) And we have an 11-unit with a huge 4BR apartment with two private entrances, private laundry room and deck.(property 241) Keep in mind though, that financing is different with buildings larger than four units, and selling them can be harder.

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