I’ve owned my duplex for a little more than three years, and have lived relatively peacefully on the first floor, with my tenants above me. While not an ideal lifestyle for everyone, being an owner-occupant has allowed me not only to become a homeowner much earlier than otherwise possible, but it’s gotten my foot into the real estate business at a time when it’s booming.
PROS OF BEING AN OWNER-OCCUPANT
- First-time homeowner mortgages. I bought my duplex with only $1000 down. I was able to get into real estate for virtually nothing, a far cry from the 20% down that many commercial loans require.
- Subsidize your own housing costs. By buying a duplex, renting out half of it and living in the other half, I was able to be a homeowner for far less per month than if I had purchased a single family house. For instance – when I bought my duplex, the low end for a single family house was about $150,000 (and those were not very nice houses). I bought my duplex for $225,000, and rented it out for roughly half of my monthly expenditure (mortgage, taxes, insurance, utilities, upkeep). Minus my rental income, I’m left essentially paying a mortgage on a $100,000 house — which was pretty much impossible to find (and not desirable if you could find it).
- Lower insurance costs. Because the duplex is my primary residence, I only need to have a basic homeowner’s insurance policy — not an expensive commerical insurance policy.
- Qualify for publicly-funded home improvement money. I was able to get city funding to replace the windows on my duplex — up and down. While there are many programs for off-site landlords as well, the program that I participated in (for which HALF of the cost of my improvements is PAID — not LOANED by the city) was only available to homeowners.
- Self-selecting tenants. I’ve had very good luck with tenants, partly, I believe, because when problem tenants hear that the landlord lives in the building, they decide they’d rather live somewhere else. Also, legally, owner-occupants are given a little more discretion in who they do and don’t rent to — see this post.
- Repairs and maintenance are easier There’s no travel time, and if I forget to bring my level along, it’s just a trip to the basement. Also, I’ve made a lot of improvements to common areas (hallways, basement, etc.) and the exterior of the house in my evenings and weekends — much more convenient when you don’t have to leave home and travel to another site.
- Flexibility. Should you decide that owner-occupying isn’t for you, or if you want a larger place, you can move out of your duplex and into another home. You don’t have to worry about selling your house – you simply find renters for it! Then your duplex will be 100% rental property, making your expenditures on it 100% tax deductible (while keeping your low rate 30-year fixed mortgage.)
CONS OF BEING AN OWNER-OCCUPANT
- Shared Housing While most duplexes offer more privacy then apartment living, you do still share a yard, and sometimes a basement, front door, and garage with your tenants. I’m fine with sharing my space, but I do feel a little more self-conscious about keeping things in my half of the basement neatly stacked, not leaving anything out in the yard (setting a good precendent), etc. There will also occasionally be cigarette butts in my flowers, bikes chained up to my railing, and the occasional party that lasts until 2 or 3 in the morning. So, if you’re a control-freak, or like your living area to be perfectly silent, it may not be a good arrangement for you.
- Not all improvements are tax deductible. When I painted the exterior of my duplex, I was only able to deduct half of the cost from my taxes — this is because only HALF of my duplex is rental property — the other half is my private residence. If I were renting out both halves of the duplex, the entire expenditure would have been a tax write-off. Also, any improvements that I make to my living area are not tax-deductible at all. However, any improvements that I make to my rental unit are 100% tax deductible.
- Self-selecting tenants. Yes, this is both a pro and a con. While having a landlord on-site can turn away many problem tenants, it does also turn away some tenants that would be perfectly fine. Some people fear that an on-site landlord will be overly nosey, always stopping them in the hallway to chit-chat, expect the tenants to be perfectly silent 24-7, etc. When showing the apartment, I make a point of telling them that although I live in the other unit, and expect them to care for and respect the property and neighbors, I don’t have unrealistic expectations of them, and do fully expect them to “live in” the apartment and make it their home.
- Maintenance could be an issue While I haven’t experienced this personally, I’ve heard that it’s much more likely to get a knock on your door at odd hours of the day for a maintenance problem when you live on-site. And you can’t pretend that you’re not home if your car is in the driveway 😉
My verdict? Owner-occupying a duplex is a great way to get started as a homeowner and in real estate investing. If your current living situation is in an apartment building, you probably will feel like you’re getting MORE privacy by moving into a duplex, while if you’re moving from a single family house you may feel that you’re giving up more. I feel that it’s been a fine lifestyle for me, although I think that it may get old at a certain point. I eventually plan to move out and into a single family house, at which point I’ll rent out both units of the duplex.