How To Get Started In Owner Occupied Multifamily Investing

Owner occupied multifamily investing can be a great starting point for new investors. Veteran multifamily investor Vinney Chopra has some ideas for you to think about in owner occupied multifamily investing.

By Vinney Chopra

I enjoy teaching investor students and helping them learn about multifamily investing and syndication and all of the benefits it brings, but some ask how to get started?

Not everyone is ready to start out buying large apartment complexes for many reasons.

It takes time to learn the right emerging markets. It takes time to learn how to finance big projects. Plus, it takes time to raise money and build relationships with investors and real estate brokers. And don’t forget it takes time to learn how to analyze the deals. That’s a lot!

So when students ask how to get started now, I talk about the advantages of owner occupied multifamily investing in real estate.

What is owner occupied multifamily investing?

Simply put, owner occupied multifamily investing real estate is when an investor resides in one part of the property while renting out the other units.

Many new investors in this owner occupied multifamily investing area start out with duplexes, triplexes or fourplexes.

However this is not for everyone as it puts the investor in the position of being a hands-on property manager with the tenants and dealing with all the property management issues such as tenant screening, repairs and even evictions.

Here is a set of pros and cons from that sets out some of the basics of learning the owner occupied multifamily investing business:

  • It can pay for itself
  • Easier to finance
  • Learning property management first hand
  • Tenant screening becomes very important as they are your neighbors now
  • First step toward larger properties and your multifamily investing career

However there are downsides:

  • Tenants complain
  • Renters may not want to live in same building with landlord
  • Avoid becoming friends with your tenants
  • Tenants are your neighbors and you may not like them
  • Conflicts can occur

The distinct advantage of owner occupied multifamily investing

owner occupied multifamily investing education

Vinney Chopra meeting with a student

There a very distinct advantages that we must keep in mind in owner occupied multifamily investing.  Not only can you use rental income to offset the amount you pay against the mortgage, there are several tax deductions and depreciation advantages to living in the same property you also rent.

Living in your own rental property, of course, isn’t for everyone.  Whether you will gain greater income from an investment property or an owner-occupied rental property ultimately depends on your individual circumstances. You should consult a financial consultant or tax advisor to discuss your bottom line. But here are several of the advantages to owner-occupied income properties to consider:

  • Higher quality tenants. Many renters are particular about who they have to live next to, and having an owner-occupied building is reassuring. Owners are also selective about who they allow to live next door, thus attracting higher-quality tenants. It’s a beneficial dynamic that brings tenants who are willing to pay higher rent.
  • Writing off expenses. Simply put, owners who occupy their rental properties are allowed to write-off their rental expenses against their rental income. Any expenses that apply to tenant-occupied units can be used as an advantage.
  • Lower management and maintenance costs. Occupying your own rental property minimizes property management and maintenance costs that are typically handled by third parties, thus saving a certain percentage of gross income.
  • The value of depreciation.  Depreciation allows an owner to deduct a portion of the building’s cost, plus the cost of capital improvements, annually from the income of the building. While it is allowed only for the portion of the building used for rental purposes, it can sometimes shield rental income from taxation.
  • The tax advantages. Along with depreciation tax, owners who live in their rental buildings can deduct the prorated part of the mortgage interest from their income. Property taxes can also be deducted.
  • Selling the property. Owner-occupied housing is also shielded from property gains taxes (at certain limits) when sold, and those that have been lived in for certain time periods – usually more than a year – are subject to lower capital gains taxes than other investments. Through a tax-deferred exchange, owners who rent where they reside can combine both tax advantages and also defer gains on the sale of the property when they purchase another property within a limited time frame.
  • Finally, owner occupied properties are exempt from certificate of occupancy and most rent control programs, therefore, the owner is not required to make certain repairs and improvements that these programs require of property that is used strictly for income producing purposes.

Michael Blank writes that he thinks duplexes are a great way to start.

 “Many real estate entrepreneurs who want to get into multifamily investing are frustrated by how long it can take to do their first deal. It takes a while to educate yourself, learn how to analyze deals, and to raise money. You have to be consistent with contacting brokers and generating deal flow. And you have to make as many offers as possible,” Blank writes.

Vinney’s duplex purchase

I want to share with you a story of a duplex that came across my desk in our early years of investing.

 It was in an emerging market and it only was selling for $119,000. With just 20% down we bought it with mortgage of $648 a month. Since it was in an emerging market with good rental demand, each unit rented for $1, 100 a month. It was a huge cash flow machine. I wish I would have found a fourplex!

My mantra is go for more number of units. Live in one and rent the other three and you live rent free.

Even though we purchased a lot of single-family homes early on, in many cases the cash flows were just not that good, especially when the tenant left and it would be 100% vacant. Plus there was the expense of getting it ready for the next tenant etc.

Your vision for owner occupied multifamily investing

Once an investor has a clear vision of what they’re looking for in owner occupied multifamily investing, the next part is to go out and find it.

Unlike the investment days of old, technology today has granted investors an invaluable resource that provides up-to-date and highly detailed information with the click of a button online.

The majority of today’s research for real estate investment is accomplished using the Internet, with investors taking full advantage of these online super tools. It should be noted that an investor’s due diligence when investing in multifamily properties shouldn’t conclude with online research only, but rather serve as the prelude in the research process.

Your best bet is to find a property that the owner has great interest in selling, whether because of moving, divorce or frustration with tenants.

Actually, if you are currently renting and thinking about using this technique perhaps your landlord would be happy to help you out!  There are a few variations that can be used depending on you and your seller.  Do they want the market price or are they just eager to get out from the monthly payments – perhaps facing foreclosure? Ask for owner financing rather than going through the loan qualification process. You can also approach the seller with a master lease option.

The simplest method is to take over their mortgage payments – called ‘assuming’ the mortgage.  Although these loans are rare these days, some lenders still offer assumable loans.   You will need to be approved by the original lender to assume the mortgage.  If you cannot get approved for an assumable mortgage you may also try a ‘subject to’ assumption where you merely make payments while the property remains in the seller’s name.

You take over the original mortgage and create a second mortgage on the remaining cost of the house with the seller.  Offer a high, interest-only payment for a short period of time – two or three years.

Why I preach to all?

Please leap forward to multifamily as soon as you can!

Move from fourplexes to eightplexes to 20 units and 50 units and then 100 units.

It’s just one transaction with some extra zeros.  The rewards are many:

  • Economies of scale
  • Ease of management
  • One transaction
  • Easy maintenance
  • Depreciation benefits
  • More consistent cash flows
  • Value add to increase revenue and NOI
  • Equity gains

While purchasing a multifamily unit may seem more costly up front, it is surprisingly easier to finance. Why? Because multifamily properties generate significant cash flow on a consistent basis.

When banks see this, they are more willing to provide a loan. This is great news for investors because there is less risk involved with the investment. If one tenant leaves your multifamily property, finding a replacement becomes far less urgent. If your tenants decide to vacate your single-family unit, you won’t earn passive income until a new tenant is found.

Another reason to invest in multifamily properties is because it becomes financially sensible to utilize a property management company. This means, as an investor, you don’t have to deal with day to day operations of your rental. You can sit back, relax, and watch your passive income checks roll into your bank account.


The Pros & Cons Of Owner Occupied Multifamily Real Estate

Why Duplexes Are the Perfect Way To Get Started With Multifamily Investing

An FHA-Financed Duplex is an Ideal First Investment Property

About the author:

Vinney Chopra is the Founder and CEO of Moneil Investment Group and President of Ideal Investments Group. His latest accomplishments include acquiring 12 multifamily assets in the last 28 months, worth $132 million. His last two syndications were sold out in just a few hours, and one in 36 hours raising $4.7 million and another one $6 million in eight hours. Between the two syndication companies he founded, Vinney’s team is controlling over $200 million worth of assets. He is a mechanical engineer. After entering USA with $7, he graduated from The George Washington University with Master’s in Business Administration in Marketing, he shifted his focus to marketing and motivation. He was a professional fundraising consultant and motivational speaker for more than 35 years with a wonderful private company. Vinney and his wife started their real estate investments in 1983. He currently owns single-family homes and multifamily units in Texas, California, Atlanta, Arizona and India. Many times, people call him “Mr. Enthusiasm” or “Mr. Smiles.” He likes to bring great value to everyone he comes in touch with.