Why I Like Owner Occupied 2-4 Unit Properties

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Have you ever considered moving into a 2-4 unit investment property? I have. In fact, that is my current plan.

Why would I want that rather than a house?

That is an easy question to answer.

Because if I own a single house, I am responsible for the mortgage, insurance, repairs, maintenance, taxes, utilities, etc. This counts as a liability to me but is considered an asset for the bank that holds the mortgage. If I am disabled and can’t work, it could be very difficult to keep paying on my house and keeping it up.

If I own a 2-4 unit property, I have tenants who will help pay my mortgage and all other expenses. Now I have a passive income stream and after 20 years my mortgage is half of what it started at (trust me on the math there – contact me if you want to see how that works)  but the value should also have appreciated. The rents should have increased so my personal obligation on the loan is small and I need less to live on – or to “cover my monthly nut”.

TIDBIT: all properties 1-4 units are considered “Single Family” homes for purposes of lending.

When I was making millions in real estate, I didn’t have the passive income stream I needed to cover my monthly nut. So when the market tanked in the 2000’s I had negative income (projects lost money) and I had no income outside of the projects to feed the family. So I had to play defense to minimize losses AND find a way to make money in a declining market. Think about that. How can that affect your way of thinking and operating? It was quite the lesson when I was new in real estate. The fact that the markets can tank helped me appreciate the conservative nature of my investors who had already been through the cycles and their words have echoed in my head continually since then.

Living in a 2-4 unit property ensures that you have a decreasing monthly nut to cover. It is probably the most fundamental financial move I believe everyone should make. Home ownership is the Great American Dream, but it is flawed if you don’t have the income or wealth to support that lifestyle.

If you don’t have the passive income, the most conservative approach to a stable retirement is to live in your investment property. Once you build wealth, then you can live in your single family home. There are many ways to do this, but you even find support for this in the Bible which says to build your business to take care of the family and then worry about the nice house – completely paraphrased and reinterpreted from Proverbs (ESV) 24:27 Prepare your work outside, get everything ready for yourself in the field, and after that, build your house.

Most Wisdom is gathered, unfortunately, from our mistakes.

Our economy is driven by consumerism which is roughly 40% of our GDP. We are encouraged to spend because it is good for our economy. However, there is a time and place to spend and it is AFTER you have the finances stabilized.

For more on 2-4 unit properties, look for my blog post on financing a 2-4 unit property coming in two weeks.

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