Owner Occupied Multi Family Investment

[Mike S.]

I am new to the forum after reading a lot of valuable posts. I have a question on what my desired rental income should be (including my own 'rental' costs for living in the property) and the applicability of the 2% and 50% RE rules in terms of the owner occupied multi-family investment. I figured I would start here since this is a new opportunity.

My wife and I currently rent at $1,500 a month. We live in Madison, WI. Real Estate is fairly stable here.

I am currently looking at the following:
3 Unit Multifamily
Sale Price: $449,000
Downpayment (20%):$90,000
Annual Taxes: $10,103
Annual Insurance: $1,572
PMI: $0
PITI([email protected]%): $2,687

Rental Expectations:
Unit 1:$1,500
Unit 2:$1,500
Unit 3 (My unit and costs..in other words): $1,500
Total: $4,500

I keep reading about the 2% rule and 50% rule and assigning 50% of the rental gross to repairs and the other to Net Income after the mortgage. I can't make this work. I am wondering if my own rental costs should go toward the calculations?

Sorry this is a bit generic of a post...but need to figure out if my expectations are out of whack.

Thanks for any help.

[Tim Czarkowski]

I follow the 2% and 50% rule for my investment properties but my home is also multi-unit building and it's not close to the 2% rule. I would never find a place that my wife and I would be willing to live in for any length of time that could. However my mortgage is fully covered and I live in a nicer home than I would have otherwise. If you are planning on buying the place and then moving a year or two I think you should find something that matches the 2% rule. If however you are going to live there for 10+ years I would compare the costs to that of a similar sized SFH and decide which will be better for you.

You would need to add the cost of your unit if you were to rent it out to calculate the 2%. From what you posted above it looks like you would be at 1%. That would be a pass as a straight investment.

Including your $1500 the 50% rule would leave you with $2225 for your mortgage and profit. Since your mortgage is above that you will be sucking money each month. That is how you compare to a SFH. Calculate how much you are going to have to pay each month and compare it to that of a similar SFH. If you feel the savings are worth the hassle of the tenants move forward if not don't.

I personally have been very happy with my decision to purchase and live in a multi-unit property. I never am worried about making my mortgage and I probably would be house poor if I had bought something comparable that did not have the 3 apartments.