Living With Tenants Advantageous and Disadvantageous?

Question

Hi guys, I am looking for some clarification of the financial benefits of living in the property I am renting.

I am 22 y/o and will be investing in my first rental property this summer. Currently I am living with my girlfriend in a two bedroom apartment and am paying $520 a month for rent. I would prefer to stay in the apartment and rent my 4 bedroom house out to tenants, however, I have vaguely heard of some of the benefits to living in my rental property. Each room will be charged $500 a month for rent (so no immediate financial gain compared to the apartment I am in.)

I was hoping on getting some clarification on some of the financial benefits of living in the property I am renting, as well as the disadvantageous (if there are any).

Thanks!

Deanna McCormick · Answer

I you live in the house yourself you can homestead the property for property taxes,, makes a difference...

G. Brian Davis · Answer

Hi @Steven Weaver, and welcome to BiggerPockets!

To answer your original question, the most tangible benefit of living in the property (at least at first) is that you can get owner-occupied financing, which is MUCH cheaper and lets you put 3-5% down instead of 20% down.

But @Anthony Dooley 
 makes a great point, that you need to make sure you're calculating 
cashflow conservatively. Are you including maintenance, CapEx, vacancy 
rate, property management fees, etc?

You might consider a small multifamily and house hacking as an alternative.

Anthony Dooley · Answer

If you paid market price for your 4 bedroom house, it would probably not cash flow very well and usually makes for a bad investment as a rental property. I would just sell the house, live with the girlfriend, and buy actual investment property where the ROI is worth the trouble. You can get 4% in an annuity and 10% in the stock market for example. If your house earns less than that after expenses and repairs, then it's not a great idea.

Riley Kuranishi · Answer

In my experience it really depends on whether or not you will gain more that much more by living with your girlfriend and if living with is more/less convenient. I purchased my first property, turned it into a rental and found that if I didn't live in it I would exponentially increase the return I would get by being able to stay elsewhere. However if living elsewhere makes things more expensive and less convenient to you then that is also something to consider.

It's all about weighing if you would like more potential cash flow for more of your time, etc.

Let me know if you have any other questions!

Cheers!

Riley

Steven Weaver · Answer

Thanks for the responses guys!

Okay so ill show you guys my math for the property I am looking at now (I am a first time home buyer).

3 bedroom home - $150,000

down payment - $7500

closing costs - $1500- $3500

TOTAL COI: $11,000

Rent per room - $500 (medium to low in my area)

TOTAL MONTHLY INCOME:$1500

$1500 - $700 (mortgage) -$350 (maintenance and upkeep) = $450 x 12

= $5400 annual income - $540 (for repairs and vacancy, I just decided to deduct 10%)

= $4860 annual income / $11,000 (COI)

= 44%

(this is my first time presenting my math to anyone so feel free to point out anything I have missed).

So this property seems great, however, I am still wondering if there are any advantages between living in the house or staying in my apartment as I would like to stay with my apartment. Also

@Brian Davis wouldn't I have the benefit of only needing to make a 5% downpayment since I will be a first time home buyer? Or have I miss understood, and I would only get the 5% downpayment if I am occupying the home?

Thanks again guys, all the info really helps!

Living With Tenants Advantageous and Disadvantageous?

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