There are certainly several avenues — start by buying a small rental property, co-invest in a larger project with other equity investors, partner with a seasoned developer, buy into a REIT , and more.
Yet one of the most popular strategies for first-time investors is to buy an owner-occupied multifamily property. This double-whammy has significant long-term implications for those looking to invest in real estate and grow their portfolios over time. The average person lives in either a single-family home, a condo, or an apartment building. These apartment buildings are one form of multifamily home. A multifamily property is simply one that contains more than one residential unit under the same roof, wherein all units are owned by the same entity.
In both cases, there is more than one unit in the building, but in the case of a condo building, each unit is individually owned and has its own deed reflecting that ownership. There are many kinds of multifamily properties. A two-family home is often referred to as a duplex.
A three-family home is often called a triplex, three-family, or triple-decker. Regardless of how many units are in the building, any building with more than one unit is referred to as a multifamily property. Generally, for a property to be owner-occupied, the owner must move into the residence within 60 days of closing and live there for at least one year. Buyers purchasing property in the name of a trust, as a vacation or second home, or as the part-time home or for a child or relative do not qualify as owner-occupants.
Homeowners usually are not required to notify their lender if they are moving out of an owner-occupied home they have lived in it for at least 12 months. The intent when applying for and receiving the loan is significant. If a buyer tells the lender, they plan to live in a home while knowing they intend to rent it, that is considered occupancy fraud.
Lenders may offer special programs to buyers who intend to live in a property rather than renovate and sell it or lease it. For proof, such a buyer must sign an Owner-Occupant Certification document. It must be signed by the property's buyer and real estate agent and filed with the sale contract. There is some flexibility in lending guidelines for borrowers who intend to live in the home but need to move out within 12 months of the loan start date.
Loan documents may specify minimum residency for some programs. The Good Neighbor Next Door Program encourages these professionals to move into revitalization areas. The HUD discount connects to a three-year owner-occupancy requirement. Borrowers who leave before the period ends would owe HUD a prorated portion of the discount they received. Real Estate Investing. Purchasing A Home. Both sides of the transaction are promising to do certain things for the other party. The lender provides the terms of the mortgage loan.
Additionally, the borrower certifies the information provided on the loan application, closing papers, and other documents are true and accurate. These certifications the borrowers make are not just to the lender. Thus, providing erroneous information to improve loan terms or even approval is considered mortgage fraud.
Mortgage Fraud is a federal crime. Not only could the mortgage note be called due in full immediately, but there could also be huge fines and jail time. To avoid occupancy fraud, ensure that there are no misstatements like stating this will be a primary residence, but it is really:.
More than likely, the above would not be acceptable to an owner-occupied mortgage loan. Yes, the terms would be better if stated that it would be a primary residence, but it is always the right answer to state what it is going to be. Some choose to become day traders and play the stock market.
Day trading is not for the faint of heart and takes a solid understanding of the stock market and how it works. A much more secure way to invest your money is through real estate. Real estate investment offers investors a more predictable avenue of cash flow that appreciates in value over time.
With many different ways to invest in real estate, one of the more beneficial is to invest in an owner-occupied rental property.
An owner-occupied rental property is an investment property that the owner also lives in. Moreover, the distinction between an owner-occupied and non-owner-occupied can make a difference when applying for mortgages. Certain mortgages may only be available to owner-occupants and not investors that want to buy and rent out to other people. Owner-occupants are more likely to qualify for mortgages that offer lower down payments and competitive interest rates.
Multi-unit family homes offer investors an ideal set up for an owner-occupied property. A multiunit property is any building that has two to four units in it. Investors are looking for a property that both them and a tenant can live in. A more traditional form of a multi-unit home, like a small apartment building, offers investors and tenants separate living spaces and more privacy.
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