Non-Owner-Occupied Investment Property

What is a non-owner-occupied investment property?

Non-owner-occupied means the owner of the investment property doesn’t live in one of the units nor uses it as their primary residence. Lenders use the term non-owner occupied when analyzing 1-to-4-unit investment properties. Non-owner-occupied investment properties require insurance before the landlord can move tenants into the property.

Why do lenders care if an investment property is owner occupied?

Lenders want to ensure that the property is cash flowing at its maximum potential. If the owner of the property is occupying one of the units then the property is missing out on a unit that could be producing recurring rental income. This classification helps lenders issue the correct interest rate as they want to be properly compensated for the risk they take when lending money to a real estate investor.

How is non-owner occupied seen as a negative?

Although lenders want to see an investment property cash flow at its maximum potential to limit the risk of lending to this investor, when an investor lives at the investment property, the probabilities of defaulting on a loan decrease. Therefore, the lender’s risk decreases, and the borrower’s interest rate decreases. Properties that are non-owner occupied have a higher probability of defaulting which is followed by a higher interest rate for the borrower.

Occupancy Fraud

Due to the fact that interest rates are higher for non-owner-occupied investment properties, investors will attempt to classify their property as an owner-occupied investment property to try and achieve a lower interest rate. This is considered occupancy fraud and the borrower, loan and property can face serious consequences such as large fees.


Non-owner-occupied investment properties allow for a greater cash flowing property, increase in diversification, and return on investment. In turn, the investor will be able to pay off the property much faster than if the property were not cash flowing at its maximum potential.

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