User home directories? What is sensible / best practice?

Struggling to decide how best to set these up - as I need them for some users for ssh keys.

Option 1:

Create

/mnt/tank/home/user1

/mnt/tank/home/user2

etc

and then also put all user data and shares in the home dataset

And I guess I should change the owner from root to the appropriate user?

or

Option 2:

Create dedicated home directories as above - but then have separate datasets for files.

Somehow I have managed to create a /home/truenas_admin for that user, but the system complains when I try to add a similar path for other users.

What do you guys all do? What is considered best practice here.

Many thanks,

Mike