Real Estate Investing Goals Part 2

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Living in the building
Perhaps you just want to get your foot in the door in a nice neighbourhood and this is the best way to afford it, or the property you want to purchase needs some work and you want to live in it while you renovate it. Whatever the reason you want to live in your rental property, be prepared to take the good with the bad. The benefits that come to mind are (especially over a scenario where you are currently a renter):

Cashflow from your home (tenant pays for some or all of your mortgage)
Affording a better location with the rental income than you could otherwise qualify for and carry
Appreciation on your home, and
Tax benefits of repairs you do (be sure to speak to your accountant as not everything is eligible).

There are downsides to living in your rental property though:

Potential for late night disturbances
Feeling unsafe in your own home (but there are things you can do to carefully screen your tenants - we'll discuss in a later edition)
Stress of having to deal with immediate problems (both large and small) because you are located there, and
It's easier to "justify" spending more than you can afford on renovations because it is "your home" and you want to make it nice.

Absentee Landlord
If the down sides sound a little too much to handle then being an absentee landlord might be the answer. You may still benefit from:

Cashflow
Leverage other people's money (tenant pays down the property's mortgage),
Tax benefits (although you will have to pay income tax on the rental income - again speak with your accountant),
Appreciation, and
If you choose to hire a (good) property manager, you barely have to think about your property.

Of course, if things go wrong you may not know about it because you aren't there. Problems that could have resolved themselves easily early on can multiply and create very dramatic issues. As well, if you choose to hire a property manager there are a whole host of other issues that can arise if your property manager turns out to be a dud (in a few months we will tell you about the property manager that stole from us, and tell you how you can take steps to protect yourself from the same thing).

Bottom line is there are positives and negatives to both situations. We have been living in one of our properties for almost two years. We have had two police visits, loads of stress over a tenant we tried to evict, and we have spent more money on renovations than we would have if we were not living here. However, all of that has been worth it because we live in an area we couldn't afford to live in without the rental income, we have been able to slowly renovate the house and it's now increased in value substantially, and we have been able to write off many of the expenses of our home against the income we get from the two other units.

So, will you live in your rental property or will you buy a place that isn't going to be your home? How does that fit with your real estate investing goals? Now that you have some things to think about, next month, we will talk about ways to find the properties that fit within your property type goals.

Published May 15, 2006