Pros and Cons of Owner-Occupied Investment Property — Pros and Cons of Owner-Occupied Investment Property….
There are different ways to invest in real estate, one of which is to buy an owner-occupied property.
This is different from normal rentals, where owners live away and visit only once in a while.
Since owner-occupants are not typical real estate landlords, they are subject to different rules and standards.
But, for a home to be considered ‘owner-occupied,’ it has to be the owner’s primary residence.
And they must live there for at least two continuous years.
There are benefits and drawbacks to living in your rental property and sharing that home with tenants.
So, should you become an owner occupant? Let’s see that below!
Click to learn more about Why Buying an Investment Property Is the Best Way to Build Your Net Worth.
The Pros of Owner-Occupied Property
Real estate investors going the owner-occupation route do gain many benefits.
So without further ado, let’s have an in-depth look at what those actually are.
1) Affordable Financing
The financing options available to an owner-occupant may be easier and more affordable than those for absentee landlords.
Basically, banks feel owner-occupants are more reliable and creditworthy borrowers.
Because the very rental property is their own residence and they have got to repay on time, or they will lose their home.
So, you do usually get better interest rates plus a lower down payment on an owner-occupied house.
2) Lower Maintenance Costs
That’s right! An owner-occupied home will likely be getting much lower maintenance costs.
First of all, you’ll be living right there on the premises so you’ll always keep an eye on the state of the house.
You won’t have to wait for the tenant to report an issue to fix it.
Because many times tenants ring up only when a minor issue turns into something serious.
So, with regular checks, you’ll keep the emergency repair costs down.
Second, you will avoid fuel costs which every off-site landlord has to bear when driving to their property.
Third, you’ll, most likely, never use a professional property manager. And, that can save you 5 to 10% of the rent!
3) Top-Quality Tenants
As you’ll be living on the same property as your tenants, chances are that you’ll screen tenancy candidates diligently.
Because nobody wants to live with irresponsible and messy housemates, right?
On the other hand, most candidates for tenancy will already be top-quality and trustworthy.
Because bad tenants, knowing that it’s an ‘owner-occupied’ rental, wouldn’t be interested in it naturally for pretty obvious reasons.
4) Tax and Other Big Savings
Finally, tax deductions offer an incentive why you may think of owner-occupation.
So, down to the point, you can write off rental expenses against the rental income.
And you can also write off the depreciation of the rented portion against the taxes.
Another great benefit is that since your rental property will be your home, there’s no question bearing the costs of living in another home.
So, you can easily escape the high costs of paying for a personal residence.
That’s what excites landlords the most about this type of real estate.
For more info on how to save on property taxes this year, read our in-depth property tax article.
The Cons of Owner-Occupied Property
Now, though there are benefits to it, there are also disadvantages to owner-occupied properties. With that in mind, let’s look at the downsides of being an owner-occupant.
Go through them below and decide what’s more suited to you.
1) Shared Living, Less Privacy
The most apparent drawback of owner-occupation is that you (the landlord) will be required to adjust with the tenants no matter how you like them.
The tenant may be used to shared living (since they applied to your rental in the first place), but you may not be.
So, if you’re a ‘no-noise, no-party’ kind of person, think about it.
Because the home will be as much theirs as it’s yours, and the tenants won’t care whether you’re an introvert or some hermit.
2) Dealing With Complaints
When tenants know that the landlord is within reach all the time they may sometimes become too pesky with their complaints.
They may pester you with their problems whenever they see you.
They may even push you for a lower rent or more amenities continuously.
The tenants will even call you up for little issues which they could have handled themselves very well.
So, with owner-occupation, you’ll lose the right to designated hours.
Your eternal availability to the tenants could become a pain in the neck for you.
Become a master landlord with our guide to the 9 Common Tenant Complaints and How to Solve Them!
3) Additional Costs
Where you can save tremendously on various costs with an owner-occupied home, on the other end, you’ll be running up additional costs.
Because the repairs which tenants would usually take care of will now be your responsibility.
Further, you can’t shift the total costs of utilities and insurance on your tenants because you’ll be a resident too.
So, only the rented part (which could be just one room) will be payable by the renters.
The remaining costs of the entire property will go straight into your bills.
4) Fewer Tenants Available
With an owner-occupant keeping watch and reminding them of the agreement clauses, tenants may become fed-up and move.
Many may not even apply to your rental due to those fears.
Because tenants don’t like being under constant surveillance all the time.
They love freedom, just like everybody else!
Now, you may NOT be the gazy, skeptical, type of landlord at all.
But the point is that tenants do have those fears anyway.
And the fears will keep so many prospective tenants from applying to an owner-owned rental.
The Final Word on Owner-Occupied Property
Let’s wrap it all up.
There are advantages and disadvantages to being an owner-occupant of an investment property.
The pros of owner-occupied property are mostly money-related, like massive tax and maintenance savings.
On the flipside, the cons of owner-occupied property are more about your personal ability to adjust with people under the same roof – tenants, in this case.
If you have got no problem sharing your living space with others, feel free to venture out into this option.
However, if you can’t compromise on your privacy, think twice (100 times, actually) before you jump into owner-occupancy.
Because after all, you don’t want any regrets later!
See great owner-occupied properties for sale on AQRE Home, and start your real estate investment journey with us!
Go from beginner to investment guru with articles and guides to any real estate investment topic on the AQRE Home blog.