Buying Condo as Primary Residence with plan to Rent Out

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Buying Condo as Primary Residence with plan to Rent Out

Stephen De George
Member since 2018 · 2 posts · 0 votes

Hi guys,

I am new to the Bigger Pockets Forum but have been listening to the podcast for over a year now.  I am 27 years old and have been saving up to buy my first property.  I have an accepted offer on a condo and my plan is to live in it for a few years (moving out from my parents house) and then look to buy a house (and house hack it) while renting out the condo.  I had a few concerns/questions I am hoping the BP community can help me out with:

  • My plan is to take out a conventional loan with a 20 percent down payment.  If in 3-5 years I decide to move out of the condo and rent it out, will I have to re-finance the mortgage since now the condo will technically not be my primary residence?  This concerns me as rates will most likely be much higher in 3-5 years and I will be heavily exposed to this risk.  Any thoughts on ways to mitigate this interest rate risk?  Also, I was told since my plan is to rent it out I will have refinance it with a commercial loan?  What does this mean exactly and is this true?
  • Concerned that this plan might put me in a bind when trying to take out a 2nd mortgage in 3-5 years.  Do you guys foresee this being an issue? ....There are many factors that play into this obviously such as pay increases at my job, getting married etc. 
  • In regards to bullet above, when the bank looks at my Debt/Income Ratio will they be factoring in the rental income that I would be making on the condo
  • I am questioning whether or not it is worth thinking about buying this condo under an LLC:
    • Will buying under an LLC allow me to not show the debt in my personal balance sheet or does the debt flow through the LLC to my personal balance sheet? Again, looking for ways to lower my debt/income ratio so I don't have problems taking out a 2nd mortgage in the future
    • If I buy it under an LLC, does that change the structure of the mortgage the bank will give me?
  •     In general, what do you guys think of this plan?  Any major flaws or things to consider?

Sorry for the lengthy message but I have a lot of variables that are running through my head and want to make sure I am thinking about everything and planning everything out now so I don't corner myself years later.

Hopefully you guys can help me out here (hoping to go into contract this week on the condo!)

Thanks,

Stephen De George

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  • Tom Parris
    Realtor · Tampa, FL · Member since 2016 · 340 posts · 248 votes
    8y

    Hi @Stephen De George,

    Welcome to BP. 

    You are doing a great strategy. The condo is something you can grow out of, and have that be your building block to RE investing. Houses, people grow into at first and take longer to make their 2nd move. You have an excellent strategy.

    As long as your first intention is for that property to be your primary, you are in the clear. You will not have to refinance in the future. Your mortgage is going to require you to have that be your primary residence for at least 12 months. Afterwards, you can rent it out as you please. Just make sure that you understand the rental restrictions in your community before moving forward. 

    It depends on the bank, but my lender tells me that they will use 75% of your rental income towards your debt to income ratio. Having a lease in hand may help the cause. 

    Don't buy the property under an LLC. I believe that will change the downpayment and interest rate requirements. I don't believe it would be considered a primary. However, maybe explore buying a trust, but talk to an attorney about that one.

    My two cents when buying the condo, ask your agent to require the seller provide you with the last 12 months of board minutes. If there's an assessment coming, they're going to be talking about it. Your lender does ask for a condo questionnaire to be filled out by the association (ask for a copy). However, the questions don't pose for future assessments, just current ones. 

    Good luck!

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  • Stephen DeGeorge
    Seaford, NY · Member since 2017 · 2 posts · 0 votes
    8y

    Tom,

    Thank you so much for the response. Feels good to have some validation of my plan.  This is great advice and I will proceed with buying the condo as a primary residence as I will most definitely be living in it for one year until I look to buy the next property. I love the advice for requesting meeting minutes. I would have never though to ask that. 

    Thanks again!

    Stephen De George

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