5 Pros & Cons of Owner-Occupied Rentals: Should I Live in My Multi-Family Home?

If you want to start real estate investing, an owner-occupied multi-family home may be perfect for you. This investment strategy involves purchasing a residential-zoned property with between two and four units and making one of them your primary residence. Living in your investment property opens you up to numerous advantages, such as favourable mortgage terms, lower down payments, and the convenience of living on-site. 

However, it has its drawbacks. There are many reasons to love living in a multi-family community, but when you own the property that comprises the community, it can be quite different. Such an arrangement can sometimes mean a compromise on privacy and bring along a heavier load of responsibilities. Delve deeper into the pros and cons of owner-occupied rentals and decide if living in your multi-family rental is right for you. 

Pros of Living in Your Multi-Family Home

Living in your multi-family home is one of the best ways to kick off a successful real estate investing journey. First-time buyers significantly benefit from lower down payments and optimal interest rates. However, investors of any experience can enjoy on-site convenience and potentially increased profit margins. 

Owner-Occupied Rentals Have Favourable Mortgage Terms

One of the most appealing benefits is the relatively low down payment requirement. If you're considering a property with just two units, you can potentially have your owner-occupied landlord loan approved with a mere 5% down payment. Buildings that house three to four units demand a down payment of only 10%. This accessibility makes it easy for beginners to get started even without savings. 

Buyers can also leverage projected rental income when applying for their loans. Lenders allow buyers to factor in up to 50% of the expected rental income when determining mortgage approval. This enhances your qualification for a larger loan and substantially boosts your buying power, allowing you to consider properties that may have initially seemed out of reach.

Those seeking a mortgage for a property they don't intend to live in will almost always have higher down payments. While the Canada Mortgage and Housing Corporation (CMHC) can provide some down payment deductions, it also has several restrictions. This type of loan only offers 5% down payments on properties that cost $500,000 or less. Multi-family homes priced up to $999,999 require 5% down on the first $500,000 and 10% down on the remaining amount. Any property that costs more than $1 million must be purchased with 20% equity. 

On-Site Maintenance Is More Convenient

Maintenance is a given for any landlord, and the lack of maintenance responsibility is the reason why some homebuyers favour condo ownership over detached home ownership. For those who reside on the same property they rent out, everyday tasks can become more manageable and cost-effective. 

Living in your rental property doesn't necessarily require being a DIY expert, but learning some basic repairs and skills can save you lots of time and money. Being on-site, you can address everyday tasks immediately. This could be as simple as replacing batteries in smoke detectors, fixing minor plumbing blockages, or attending to minor drywall repairs and other wear and tear. Staying on top of the little things can prevent larger problems from accumulating over time.

Occasionally, a problem may surpass DIY solutions and require professional intervention. As an on-site property owner, you can promptly identify these issues and contact the right pros, preventing them from escalating into more severe (and costly) problems. Immediate attention to leaks, electrical faults, or major appliance malfunctions can mean less damage and a lower repair bill.

One of the more direct financial benefits of being an on-site property owner is the potential savings on property management. Full-time property managers typically charge a percentage of the monthly rent, which can eat into your profits. By living on-site and handling much of the day-to-day management and maintenance, you can avoid splitting profits with another party, ensuring that a larger share of the rental income stays in your pocket.

House Hacking: A Strategic Path to Building Equity & Funding Future Investments

Living in your multi-family rental means you're partaking in what many people call "house hacking." House hacking refers to any arrangement in which the property owner lives in their rental unit and uses the income to offset or even completely cover the mortgage payments. By utilizing rental revenue in this manner, homeowners can significantly reduce their personal living expenses, enabling them to pay down their mortgage faster and build equity more rapidly.

As equity in the property grows, you can leverage it by refinancing or using it as collateral to invest in additional real estate properties or other ventures. The beauty of house hacking lies in its twofold advantage: it provides an immediate financial cushion through rental income while simultaneously paving the way for wealth accumulation and future investments.

Downsides of Living in Your Multi-Family Rental Property

Despite all of its advantages, owner-occupied rentals aren't for everyone. Living in your multi-family rental is a great way to save money, but you must first ensure that the payoff is worth the time and effort of being an on-site landlord. 

The Privacy Trade-Off: Living On-Site as a Landlord

When you're both a landlord and a resident of a multi-unit property, the lines between your personal space and business endeavours can often blur, leading to a diminished sense of privacy. Living on-site means you're the neighbour and the point of contact for any rental issues. Tenants may knock on your door at unconventional hours or approach you with concerns during your downtime. 

Moreover, the distinction between "home" and "work" becomes less defined, as your home is also your business. Daily activities, like gardening or entertaining friends, sometimes feel observed or interrupted. While there are undeniable conveniences to living on-site, it also comes with the trade-off of a more public life, where boundaries between the personal and professional are constantly negotiated.

The Weight of Responsibility: Challenges of Being an On-Site Landlord

Choosing to be the on-site manager of a rental property is a hefty responsibility that rests squarely on your shoulders. While you're the captain of your ship, it also means that when life's inevitable interruptions occur—be it illness or a much-needed vacation—finding a reliable stand-in becomes crucial to ensure the smooth running of your property. 

Although sidestepping the costs of hiring a professional property manager can seem financially beneficial, it's essential to consider the broader picture. If the demands of being a landlord disrupt your other professional pursuits or revenue streams, the financial setback may outweigh the money saved on property management fees. While self-management offers autonomy, it demands constant vigilance and a balance between landlord duties and other commitments. For many of the same reasons why condos make better investments than houses for some people, the extra responsibilities of living in your multi-family investment property aren’t for everyone.

Living in Your Multi-Family Rental: Is It Right For You?

In the vast real estate investment landscape, owner-occupied multi-family homes present a unique opportunity for budding investors. The financial perks, from advantageous mortgage terms to rental income offsetting expenses, are undeniably alluring. However, it's a venture that requires a clear understanding of its rewards and challenges. While living on-site provides convenience in maintenance and management, it also intertwines personal and professional spheres, sometimes at the cost of privacy and uninterrupted personal pursuits. As with any investment, potential landlords should weigh the pros and cons, ensuring their choice aligns with their lifestyle, financial goals, and long-term vision.