Using Second Home as Rental Property

[Maurice Blackledge]

Hi Everyone,

I live in (MN) and I'm looking to purchase an out of state property with the intention to buy and hold, then rent out.

I was talking to a potential lender and was told that I could use the second property as a “ second home” in order to put less down at closing.

My question is: has anyone ever done this with a property they own out of state? Also, is this legal (not trying to discredit the lender)? Are there tax implications around this setup?

[John Woodrich]

@Maurice Blackledge I would talk to @Tim Swierczek about how financing would work on this.  If you are truly not planning on using the house as a second home or vacation rental I am guessing this would fall into mortgage fraud.

On the tax side - if you are buying a second home and live in it during the year, you will likely fall into the vacation rental rules.  This typically allows you to offset rental income with rental expenses but your loss (if any), is not deductible.  In reading your post I have a feeling your intentions are more along skirting the mortgage rules though so this may not apply.

if you indeed purchased it as a second home, meeting the financing requirements, you could convert it to a rental property and avoid the vacation rental rules....

Long story short - if you are only looking into this to try and get cheaper financing and do not intend to use it as a second home I would recommend another approach.