Owner-occupant Cash on Cash Return

4 Replies

Hello, I am in the process of beginning to search for a 2-3 flat in Chicago that my wife and I can live in and simultaneously rent out the other unit(s). Given we will be living in one of the units, we won’t be collecting rent from that unit and as a result, our return is cut dramatically. Should I be analyzing deals for owner-occupant homes the same way as a complete rental (~12% cash on cash, 1% rule, etc.)? Thank you for any and all help. Jesse
Originally posted by @Jesse Frageman :
Hello,

I am in the process of beginning to search for a 2-3 flat in Chicago that my wife and I can live in and simultaneously rent out the other unit(s). Given we will be living in one of the units, we won’t be collecting rent from that unit and as a result, our return is cut dramatically.

Should I be analyzing deals for owner-occupant homes the same way as a complete rental (~12% cash on cash, 1% rule, etc.)?

Thank you for any and all help.

Jesse

 Run it as if you did not live there.  You want to make sure it will cash flow 

I would analyze it to include the replacement rent once you guys move out because your true return of that property is providing you the utility of that rent (so if you lose $200/mo but would be paying $1,000/mo to rent elsewhere, it’s in fact a solid investment and you can ‘save that extra net +$800 towards increased principal pay down or save for another down payment. Still account for maitenance and vacancies as you would see on the other units of the property but the goal would be for you to move on to another one at some point and of course you can always stay there if you want.

Thank you, Brie and Mark, for your replies.

Brie- do you mean I should analyze the property to include market rent from all units, and also include vacancy, repairs, etc for the entire property (opposed to only the units we would be renting out)?

Mark- I follow your response up until the $800 net amount we would be making. To clarify, do you also mean to gross rents up to include rents for all units? If our unit would rent for $1,000, I would include this in the analysis (even if this covered the mortgage), to show what the true return of the property would be after we move out, correct?

Thank you very much again!

Originally posted by @Jesse Frageman :
Hello,

I am in the process of beginning to search for a 2-3 flat in Chicago that my wife and I can live in and simultaneously rent out the other unit(s). Given we will be living in one of the units, we won’t be collecting rent from that unit and as a result, our return is cut dramatically.

Should I be analyzing deals for owner-occupant homes the same way as a complete rental (~12% cash on cash, 1% rule, etc.)?

Thank you for any and all help.

Jesse

 Hey Jesse, I'm a fellow investor on the north side of the city.  While analyzing deals, primarily do the math as if you were paying fair market value for the unit you'll be occupying.  You can secondarily calculate the deal without that revenue...I do that sometimes as its fun to look at the numbers showing that you're living for free.  

What areas of the city are you interested in?