There was no doubt this property offered a big upside.
taxation rules, so check with your CPA. The basic idea is that the benefits are great and can also create great upsides. Over the years, I have done a number of these owner-occupied and highest- and-best-use strategies, either personally or assisting others to do so.
freed up money for me to do updates and renovations.
4 ROOM FOR DO-IT-YOURSELF RENOVATIONS AND LARGER ROI
OVERCOMING THE CHALLENGE
Typically in an owner-occupied invest- ment, you have the luxury of more time, so I was able to do most of the rehab work myself. It was something I enjoy doing, and I did not feel rushed to complete the work. 5 HIGHER-QUALITY TENANTS WITH LOWER MANAGEMENT COST AND HIGHER CASH FLOWS When tenants know their neighbor is their landlord, you tend to attract better-quality tenants. Because you live in the building, your management costs are eliminated because you are right there to take care of issues as they arise. With these benefits, I have been able to help many beginning investors acquire their first properties. It is a lucrative and afford- able way to get started. It also provides for a great value play for investors who want to move up to bigger and better homes. • Larry Arth is the founder and CEO of Equity Builders Group, a Florida-based real estate investment group. A 36-year veteran of real estate investing, Arth also is an international consultant and speaker who each year assists hundreds of investors, both foreign and domestic, in realizing their investment potential. He analyzes locations for economic strength and for the largest and most sustainable returns and, most importantly, sustainable turnkey investment. His focus is offering turnkey investments to the passive investor. www.howtobuyusarealestate.com
My challenge was that I had just pur- chased a four-unit apartment building about six weeks earlier, and I did not have the cash needed for a down pay- ment on another investment property. There may have been a number of creative ways to buy this property, such as leveraging other properties or asking for seller financing, but I chose the most lucrative path. I decided to move into the property and make it my homestead and keep renting the bottom apartment to a tenant. This owner-occupier loan would allow me to get the best possible leverage with a low down payment and the best financ- ing terms available. It created an economical way to live, while executing the value play. There were, of course, certain limitations on tax-deductible expenses as the own- er-occupied portion of home renova- tions were not deductible. I wound up purchasing the property for $99,000, and over the course of five years, I updated and renovated the property. Most importantly, I enjoyed what people refer to as resort-style living. I en- joyed the boating on the lake, the many pool parties and the enormous wood shop I had in the second garage. After about five years, when the tenant in the downstairs unit (yes, the original six-year-long tenant) decided to move on, I converted the kitchen into a man- cave-style wet bar and the living room into a home theater room. With that, the renovations were complete. The updates I made cost $55,000, for a total investment of $154,000. I sold it for $330,000. This proved to be both fun and lucrative. It combined a highest-and-best-use strategy with an owner-occupied investment strategy that I highly recommend. It is important to note that tax rules that apply to these investments may vary by individual circumstances and state
5 BENEFITS OF THE OWN- ER-OCCUPIED INVESTMENT
1 LOWER INTEREST RATES, HIGHER CASH FLOWS
With an owner-occupied property pur- chase, you have access to the best interest rates possible, which can increase your cash flow and overall returns. Loans for non-owner-occupied properties are more expensive.
2 HOMESTEAD CREDIT AND HIGHER CASH FLOWS (REDUCED PROPERTY TAXES)
Note: Homestead credit for owner-oc- cupied, two- to four-unit buildings are fairly common, but rules do change from county to county or state to state, so you will need to add this to your due dili- gence if you decide on such a strategy. 3 LOWER COST OF LIVING With a tenant paying part of the house payment, your living expenses are reduced drastically. In this proper- ty, my tenant paid 60 percent of the expenses while only occupying 40 percent of the property size. This
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