First Property-Owner Occupy

8 Replies

Hello Everyone! Thanks for taking the time to read my first post.

I'm curious to hear if anyone else started out by occupying their first income property.  I'll admit, I just created an account on here a few weeks ago, and its kind of overwhelming.  

I am currently awaiting commitment from my lender on a 2 unit house which I am taking out a 3.5% down payment 30 year FHA mortgage. I hadn't heard of BP prior to this. While I have been passively looking for a multi unit house while saving (I wanted a much bigger down payment), I just couldn't pass up this opportunity.

I am just curious if anyone else started out this way.  I am interested in owning multiple properties ranging anywhere from 2-4 units, and hope to purchase another next year.  Although I will be living in half of the house (doing cosmetic work in unit 1, then moving to unit 2, doing the same, then moving out), after I move out the house will net me at a minimum $300.00 a month after PIMI.

Many of the things I have read usually consist of people purchasing with cash or a conventional mortgage, so I feel my situation is a little more unique, however I could be looking in the wrong places.  If anyone could steer me in the right direction I would appreciate it.

Thanks!

Kevin

Welcome! 

Im a newbie and unfortunately can't answer your question.  Actually I have a question for you.  Im considering starting similarly.  Where did you reside bbefore the purchase and how do you plan on purchasing/financing a second multi family unit while still paying for the first? 

@Kevin Sullivan  

welcome to the site. Great plan. Owner occupied multi is an awesome way to get started. You cannot beat owner occupied financing terms.

Hello Travon.  I currently live in an apartment in the city of Buffalo, and I purchased the home about 10 minutes away.  As it stands now, one of the units in the home is currently occupied. The mortgage, without any of the units occupied, including taxes and insurance is only approx. $115 more than my current rent.  With the current occupant (in the smaller unit), moving into the home will actually save me an extra ~350/month. Once I move into the smaller unit and rent out the larger one, I will be saving an extra ~500/month on top of my current savings rate.  So, ideally, a year from now, I would be able to afford to purchase a second property with a conventional 20% down mortgage, if all goes to plan.  

Thanks, James, I appreciate the support!

Yep. lots of folks started out that way, including me. And if you can take the stress of moving every few years then "serial owner occupancy" is a very cost effective way to build a portfolio. You do need to be sure to read the fine print on your loan documents and make sure you're staying put long enough to not be in violation of your agreement re residency. (you can't take out an "owner occupied" loan and only live there a few months before you apply for another, for example)

@Kevin Sullivan   and @Travon Allender

Hindsight being 20/20. If I could start over again, I would buy a 2-4 family and live in one unit for a couple of years. The advantage to this is that the property will either cover most of your living expenses or potentially all of them (better chance with 4 family).

Either way, your financing will be based on owner occupant financing rather than investment financing where you're required to have a larger down payment (25-30%)and will pay a higher interest (usually 1-1.5% higher than owner occupant).

Going in this direction will allow you to grow quicker since you can save what you would normally have been in rent and thus get you to the next property faster (as long as you don't spend it...discipline is key).

Travon, It is possible to finance a second property while still paying for the first. usually, banks will give you a 75% credit on collected rents (make sure to have signed leases). By that, I mean that let's say you collect $1000 a month in rents, the banks will add $750 of that (or 75% of $1000) to your income for their debt to income calculation. this means that if 75% of the collected rents cover the Mortgage, taxes and insurance then the whole debt of the mortgage on the first property is a wash (kinda looks like you don't have a mortgage payment). This is how we are able to keep qualifying for more properties. Every time we purchase a property, our income goes up and thus negates the standing debt.

Best of luck to the both of you!

I currently in the same boat as you Kevin, I'm awaiting commitment from my lender on a duplex. I will be moving in one year giving me enough time to save 20% for a conventional loan. You not in the wrong place and what your doing is very common in the Real Estate business. 

Thx for the detailed explanation! Makes perfect sense.  Good luck

@Kevin Sullivan

Hey there Kevin, I'm just curious how things were going with your purchase.  This was a very interested thread that I just finished reading.  I might be looking to do the same thing in the near future.

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