Purchasing first multifamily as live-in landlord

[Christian Austin]

Hello all at biggerpockets. This is my first post, besides an introduction. I'm looking forward to hearing feedback from the experienced.

I am currently looking to make my first real estate purchase. I plan on buying a multifamily property as a live-in landlord. I have many questions, but the most pressing question I have is what would be a smart investment strategy: I am considering two options. Purchase of a two family with future expansion possibilities in an attic or basement (unfortunately I cannot legally build another apartment in these spaces), or purchase a three family.

The pros of the two family are that the inventory is higher than the three family (but still low), and the cost will be lower than a three family; furthermore, the very low three family inventory drives up bidding and the risk of overpaying. The con of the two family is less cash-flow, from only one rent, although this could be improved with expansion.

Purchasing a two family in good structural shape, but possibly outdated, will be tight using my personal savings to cover the 20% down-payment and closing costs. I will not be able to purchase a three family in similar condition without a family loan to help cover the 20% down and closing. So in the two family case I will be financially extended to the limit, and in the second case, I'll be extended beyond.

As a rough estimate, the three family cash flow should cover my mortgage and taxes, but in addition, I would have to pay back a family loan and it might be tight to have a cash reserve. The two family cash flow will not fully cover my full mortgage, but may come close after expanding. Plus of course there will be expansion costs, which I could personally finance after regenerating some savings with time.

What investment would you make in my position? I'm open to other ideas as well.

Thanks.