Advantages of first time buyer : Owner Occ plex as opposed to cash flow in out of area market

[Jay Hinrichs]

Advantages:

1.  choose your tenants  by owner occupying your duplex or 4 plex your not subject to the national discrimination rules.. You can choose your tenants ( hand pick them) discard any for any reason..

2. when you sell you get the owner occ 250 or 500k exclusion.. I know in non apprecating markets this may not be a consideration but in markets were values will move this will make up for years of cash flow in a non appreciating asset.

3. Owner Occ low down mortgage you can leverage into a very nice property for far less up front money. 

4. You can stay right on top of your asset since you live there. and since you hand picked your tenants you should have a pretty tight ship.. and not subject to PM and other risks associated with out of area rentals.

Anything else ?   any counter points to this argument ?

[J. Martin]

@Jay Hinrichs , I'm totally with you on the advantages, and I think you know my first purchase was an owner-occupied 4plex w/ an FHA loan. So I'm on board!

ANOTHER HUGE ADVANTAGE:
FHA uses 75% of the non-owner unit rents to qualify you for the mortgage! Great way to up your price point through low downpayment, and your qualification through your tenants' payments!

But since you're asking for the

DISADVANTAGES:
1) Finding a place that you (and your significant other(s)) are comfortable living - many investors I know have a family, job in a particular area, school district etc where it might be a better investment or the numbers work better outside where they need/want to live. Make sure the others in your life are on-board..
2) Sharing Walls - If you're already an apt dweller, probably no big deal. But I've found people really don't like moving out of SFH into apartments
3) Some investors DON'T want ANY property management duties. They'd rather farm it out to someone else. And don't want to live next to their tenants..
4) Price points - can still be challenging in the Bay Area at least. And for FHA, I think they only go up to $1.2MM for 4pexes in high-cost areas like SF, Oakland, Peninsula. That already throw out most of the 4plexes in nice areas (over about $400/sqft..)

Do you know of low-downpayment owner occupied loans that are not FHA specifically on owner-occupied 4PLEXES? SFH is no problem, and some duplexes are lower, but had a tough time getting below 20-25% downpayment on owner-occ 4plexes, even in the Bay..

Again, having done the owner-occ 4plex for my first purchase, it worked great for me and laid the foundation of cash flow to grow my portfolio. And I plan to do it again sometime! Highly recommended! Just wanted to throw out some of the disadvantages too, although these didn't stop me for my circumstances..

I'll never say never to out of state, but to each their own, and for their circumstances..

Great post Jay! I think you're spot on!