Author Topic: Multifamily as primary residence  (Read 722 times)

JupiterGreen

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Multifamily as primary residence
« on: June 09, 2024, 08:56:02 AM »
Does anyone live in a multi for their primary residence? We are making a move and are considering buying a multi to live in one unit as our primary. The strategy we are considering is to buy a multi with a Fannie Mae loan (5% down), if we can get one of these loans (haven't looked into where to apply). If I understand the terms, we have to live in the multi for one year to get the low down payment. We are moving from a LCOL to a HCOL, the multis I'm looking at are between 400-500 and we have a house to sell that will conservatively net us 240k. Our 'stache (not including our current home) is 1.5m (with about 300k in taxable).

So the plan is to buy a 2 family with as little down as possible, live in one unit, rent the other and live in it for a year. Then we would be looking for a conventional home in the same area with the proceeds from our current home sale. That would then allow us to rent out both units (there are people waiting for rentals in this area and I have good connections here). The area we are moving to has high rents and so getting into the area this way will be less expensive for us and might also allow us to add real estate to our portfolio. We have not been landlords before, but we have some knowledge, carpentry skills, and have very close friends in the area who own many multi properties and have been investing in the area for the past 15 or so years. They are a fantastic resource to us.

Has anyone done this? What are your thought on moving forward with this plan?

sonofsven

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Re: Multifamily as primary residence
« Reply #1 on: June 09, 2024, 10:06:04 AM »
Years ago I was considering this with my now ex and our very young DD but we changed our minds.
We had bought a series of fixers and lived in them and then bought a fixer duplex. I am a contractor/carpenter and I fixed the duplex on a low budget by doing all the work (except the roof and a new furnace for one side) myself.
We liked the idea for the income side, as the rent for just one unit would more than pay the mortgage, tax, and insurance.
We ultimately did not move in for a few specific (to us) reasons.
One was that as a working contractor I would have to park approximately 75' from the basement door and carry all tools and supplies for my jobs into my van, as there was no garage and only street parking. I did make a plan to build a garage and got it approved. This expense (paid for with a HELOC) would have pushed the monthly expense into the red slightly, although this wasn't a deal breaker.
I didn't relish living next to the tenants as a landlord, I thought it would feel weird. I had mostly good experiences with my previous tenants, but growing up taking care of my parents rentals I knew that could end. I didn't want to be called on by the neighbors to fix every little thing on their side.
The main reason, though, was that we found our "dream property", and jumped on it. Really quality properties in my area are hard to come by and this one had everything we wanted.
Twenty years on, I'm still here, post divorce. I kept the house and she sold the duplex. It put a big crimp in our FIRE plans since the duplex would be grossing $6k/mo now, but that's the way it goes.
Overall, I think it's a solid idea, but whether it's right for you I couldn't say.

bacchi

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Re: Multifamily as primary residence
« Reply #2 on: June 09, 2024, 10:41:58 AM »
We have an ADU. Does that count? There's about 40 feet between the houses and not having a shared wall is a big plus.

We were lucky with tenants. We ended the lease with the first couple just before -- unbeknownst to us -- they ran out of money due to quitting their jobs and turning into Switch playing hermits (missed that problem by a hair!). We would've kept renting to the second couple if we didn't need to move into the front house for tax reasons.

For reducing expenses, it's worked wonderfully. You could even live in one side, fix up the tenant side with some "safe harbor" improvements that you'd like, and then swap.*

If you're not living in California, where it's tough to get rid of problem tenants, it's a great house hack. Just be careful to screen your tenants well.



* We did this before we moved back into the front unit. The exterior doors were original and flimsy/leaking/not energy efficient so we replaced them. We had the floors refinished, installed Indows (interior storm windows), painted the exterior, replaced the water heater, etc.
« Last Edit: June 09, 2024, 10:46:41 AM by bacchi »

JupiterGreen

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Re: Multifamily as primary residence
« Reply #3 on: June 09, 2024, 11:20:44 AM »
Thank you @bacchi and @sonofsven this is very good info. Living with tenants on the other side of the wall/floor is not ideal, because you never know how they'll be. It would be great to find a multi, like the ADU you have that does not share a wall but I haven't seen anything like that yet. There are a lot of people looking for housing in this area right now so the upside to that concern is we can be picky with tenants.

The inventory on SFH in our price range is so low right now that nothing is staying on the market long. For some reason people are not buying multis as quickly. So considering the multi route it also a matter of just getting into the area. We are in the research phase, we are listing our current house either this week or the week after (still interviewing realtors). For a SFH purchase we will need to get our current home under contract before putting in an offer, but if we can get the 5% loan for a multi we have enough cash on hand to offer on a multi should we find something good before selling our current residence.

I appreciate your experience and insight, thank you for sharing it.

clarkfan1979

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Re: Multifamily as primary residence
« Reply #4 on: June 10, 2024, 12:27:46 AM »
Thank you @bacchi and @sonofsven this is very good info. Living with tenants on the other side of the wall/floor is not ideal, because you never know how they'll be. It would be great to find a multi, like the ADU you have that does not share a wall but I haven't seen anything like that yet. There are a lot of people looking for housing in this area right now so the upside to that concern is we can be picky with tenants.

The inventory on SFH in our price range is so low right now that nothing is staying on the market long. For some reason people are not buying multis as quickly. So considering the multi route it also a matter of just getting into the area. We are in the research phase, we are listing our current house either this week or the week after (still interviewing realtors). For a SFH purchase we will need to get our current home under contract before putting in an offer, but if we can get the 5% loan for a multi we have enough cash on hand to offer on a multi should we find something good before selling our current residence.

I appreciate your experience and insight, thank you for sharing it.

I think your logic for the duplex is sound. I would go for it. The 5% down payment on a duplex is probably one of the better moves right now with the higher interest rates. Just make sure you have plenty of reserves if shit goes sideways for a short time.

lhamo

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Re: Multifamily as primary residence
« Reply #5 on: June 10, 2024, 07:56:22 AM »
Definitely look into how landlord/tenant laws and policies may have changed already and may be changing in the future.  At one point I thought I might experiment with real estate/rental property investing, but Seattle's laws are moving in similar directions to California and landlords have increasingly little discretion over who they rent to.  I may eventually build an ADU on my current property, but it would be primarily for my kids and hopefully I won't ever want to evict them :)  If I did rent outside my family, I probably would only do it through word of mouth to tenants known to people in my family or social circle.  Seattle now has "first come first served" rental advertising laws where you legally are supposed to rent to the first "qualified" renter who comes along.  This is supposed to reduce discrimination, but in fact has probably increased it because now landlords give really high criteria for prospective tenants (e.g. monthly income of 3x rent, long leases, huge deposits, multiple references, etc.) in order to minimize the pool of applicants and reduce their risk.  There are other sneaky ways around the rules that probably could get challenged in court, but most non-affluent renters are simply not going to bother.

JupiterGreen

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Re: Multifamily as primary residence
« Reply #6 on: June 10, 2024, 09:24:14 AM »
Definitely look into how landlord/tenant laws and policies may have changed already and may be changing in the future.  At one point I thought I might experiment with real estate/rental property investing, but Seattle's laws are moving in similar directions to California and landlords have increasingly little discretion over who they rent to.  I may eventually build an ADU on my current property, but it would be primarily for my kids and hopefully I won't ever want to evict them :)  If I did rent outside my family, I probably would only do it through word of mouth to tenants known to people in my family or social circle.  Seattle now has "first come first served" rental advertising laws where you legally are supposed to rent to the first "qualified" renter who comes along.  This is supposed to reduce discrimination, but in fact has probably increased it because now landlords give really high criteria for prospective tenants (e.g. monthly income of 3x rent, long leases, huge deposits, multiple references, etc.) in order to minimize the pool of applicants and reduce their risk.  There are other sneaky ways around the rules that probably could get challenged in court, but most non-affluent renters are simply not going to bother.
Interesting! Okay I will definitely look into that. I know of at least one person who is looking for an apartment in the area that I personally know. I was feeling the opposite of your advice that I didn't want to rent to someone I know, but I can see your point. The state is a renter friendly state too, but I don't know where it compares to CA and WA, I will definitely look into that. Do you have any experience with short/medium term rentals? I may be able to use that strategy in the areas I am searching.

Thank you @clarkfan1979

Sibley

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Re: Multifamily as primary residence
« Reply #7 on: June 10, 2024, 11:22:42 AM »
I grew up in a duplex. My family lived in the downstairs unit, my parents rented out the upstairs. As a kid living there, it was just the norm. Just like if you lived in a condor or apartment unit. My family did a lot of DIY work on the house, it was old and needed it. So I learned to do a lot. The upstairs unit was in better condition so it didn't need anywhere near as much work, mostly just in between tenants. Tenants leaving was a stressor - my parents couldn't really afford the mortgage without the tenant, so money was tight when it was vacant. Luckily it was never long. The tenants who trashed the place were real burdens on family finances. I was well aware of this.

From my parent's perspective, they were landlords. Sometimes that was fine, sometimes it was a hassle. When we were younger, they tried to minimize the impact that the stress had on us kids. More recently, my sister and I had a goal of getting them out of that house and moved closer to me. They were older and no longer able to handle the house/responsibilities of being a landlord. They sold in 2021 and there were real problems with the tenant at the time, they had to evict the tenant.

Do you want to be a landlord? Good that you have friends, talk to them. Get the good, the bad, and the ugly. And pay attention to what's happening legally with requirements. Also be aware of the tax consequences.

roomtempmayo

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Re: Multifamily as primary residence
« Reply #8 on: June 10, 2024, 11:46:50 AM »
In about 2018 we looked at buying a duplex as our primary residence, with the plan to rent out the other half.

What derailed that plan was the inability to find a good property in the right neighborhood at a good price.  Everything on the market was some combination of run down and overpriced to the point where buying two small houses would have been a better value.

I think the plan is good in the abstract, but finding a property where it makes sense might be a challenge.

rothwem

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Re: Multifamily as primary residence
« Reply #9 on: June 10, 2024, 01:34:54 PM »
In about 2018 we looked at buying a duplex as our primary residence, with the plan to rent out the other half.

What derailed that plan was the inability to find a good property in the right neighborhood at a good price.  Everything on the market was some combination of run down and overpriced to the point where buying two small houses would have been a better value.

I think the plan is good in the abstract, but finding a property where it makes sense might be a challenge.

This was my trouble, in Raleigh, most of the duplex's were in bad parts of town.  When we did find one in a not super sketchy area, it often would not appraise because all of the comps were from parts of town that were undesirable.  We were under contract for one place at $175k, it only appraised for $150k, and I didn't have money to cover the difference, and they had a cash backup offer for full asking and we lost it.  We eventually found one in a good part of town and bought it in 2014.  We got under contract for $258, it only appraised for $250k, and the seller agreed to meet me in the middle at $254k and I covered the extra $4k.  It was a 10 month odyssey to find the right property though, so don't lollygag in getting started.

We lived on one side and rented the other out until we moved out in 2018, and now we rent both sides.  It was pretty awesome, the rent covered most of the mortgage once we fixed it up a bit and got new tenants--the people living there were great but were paying way under market rent so the numbers weren't awesome.  Market rent was ~$1100ish per side and the PITI was $1395, so our living costs were very low. 

It was a great "soft intro" to RE investing for me.  When you share the building with your renters, a lot of the tenant laws don't apply to you.  (It varies state to state and you should find out what the laws are in your jurisdiction)  That doesn't mean you should be an asshole, but there is less fear about offending someone or making a booboo that could cause a lawsuit because of your special status as an owner occupant. 

Anyways, let me know if you have any questions.  A lot of the acquisition "beta" that I've got is 10 years old, but I'll try to answer any questions that I can. 

Archipelago

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Re: Multifamily as primary residence
« Reply #10 on: June 10, 2024, 01:53:07 PM »
I did this with a 4-family when I was 23 and would do it again in a heartbeat. Best financial decision I've ever made. 7 years later my wife and I are looking for a side-by-side duplex to do it again.

I'll save this post and write with more info later.

Archipelago

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Re: Multifamily as primary residence
« Reply #11 on: June 19, 2024, 09:34:41 AM »
Circling back to this. I bought a 4-family back in 2017. At the time it was the most expensive 2-4 unit house in the town. I bought it at the top of the market. I bought it for $347k @ 4.185%. I was 23 years old and making $17/hr at my FT day job and $700/month at my PT job (around $44k annual income).

The only reason I was able to qualify for the mortgage was because the bank uses the rental income from the other units towards your qualifying income. I moved into a vacant unit which I renovated. When another person eventually moved out, I rented my renovated unit for more $ and moved into the unrenovated one. Rinse and repeat.

This was back in the days where a deal like this could only be done with an FHA loan 3.5% downpayment (which I did, and it took forever to close). Nowadays banks are letting people to do it with conventional loans 5% down which is even more attractive.

The nice thing about the 4-family was that 3 of the units covered the mortgage + all expenses entirely. So for the 5 years I lived there, I was living for free. The math doesn't pencil out as favorably with a 2 or 3 unit, but it still makes sense to offset your mortgage.

I ended up leaving the state and moving out, but I still own the building (live 2.5 hours away). It cashflows around $1400/month and I self-manage it and pay myself another $500/month.

Your plan sounds like a good one OP. Go for it. Just make sure the numbers work out where you're not losing money, breaking even, or barely making enough money where the headaches of being a landlord aren't worth it. Leverage the other MFR investors you know into getting good contractor referrals, etc.

JupiterGreen

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Re: Multifamily as primary residence
« Reply #12 on: June 19, 2024, 11:29:20 AM »
Thank you for this. @Archipelago there is good info here. This is what my friends have said as well that the 4+ families are the most profitable. Two families tend to not be as much and 3 families can be profitable it just depends. We still have to sell our home so we are going to do some short term housing in the area, get the lay of the land, and if something good comes up we'll have to see if the numbers work.

@rothwem and @roomtempmayo  This definitely gives me something to think about. I'll ask my friends about this issue. Hopefully, if we do buy a multi we can get good comps. There are multis all over the city we are moving to, but of course some areas are better than others. Will definitely keep this in mind.

@Sibley I don't think we necessarily want to be landlords (does anyone?), but I also think I could do it just fine since I can deal with difficult people and it is a possible means to an end. I will have to look at the legalities and I will ask my friends about the good, bad, and ugly. Thanks.