50% Rule of thumb when Owner Occupies a unit

[Wendy Geiger]

I want to start by purchasing a 4 plex or lot w/ 4 units. I want to live in one and rent 3 units. I calculated my cashflow differently since I'd be getting rent from 3 units rather then 4. However, I would like to know how it has worked for those who have done it and what fromula would you recommend just as a rule of thumb for filtering though properties.

[Matt Devincenzo]

I haven't done this myself since I rent here in CA and invest out of state but here is what I would do.

Ignore the fact that you will be living there. Run your numbers based on 4 rental units with 4 tenants ect. See what that gets you, and try to get those numbers. You will have the disadvantage of competing with other retail buyers who may be wiling to spend more. But will also have the advantage of getting an owner occupied interest rate that will be considerably lower than what investors can get. That should put you in a position to meet somewhere in the middle of getting a killer deal and spending too much like most owner occupant buyers who do rent-PITI= cashflow.

As far as the 50% rule goes, it will still hold true whether you OO a unit or not. Overall things will break whether it is you living there or an actual tenant, you may be more careful than a tenant but don''t split hairs trying to justify numbers when at some point in the future you will move out and still want it to cashflow at that point.

Also a general reminder the 50% rule is not the end all be all it is an initial pass at the numbers so evaluate the deal based on actual numbers. But with that don't use eraser math to "make" a deal out of a dog.