Buying as primary residence vs investment

7 Replies

We have a commercial spot under contract that has a 3/1 house as well as some storage potential and a small commercial unit. In talking with the bank we are getting in house financing at 5.4% amort 30 years. My question is we plan to rent the house and use the commercial building, I told the bank it would be our primary residence but we will be doing rehab and renting. I want to be able to write off all the expenses for the rehab so I need it to be an investment property instead of primary residence. Why does it matter and will the bank care if I say it's going to be an investment property?

I would not advise committing mortgage fraud if you do not intend to occupy as a primary residence. You have a reasonable time after rehab to occupy the premise.

The bank views investment property and primary residences differently based on risk. If you were to run into a tough spot, you will stop paying your investment before the property that you live in. That is why primary residences get better financing rates, less risk. By lying about your intent to live in the property, you are committing mortgage fraud, which is a very serious crime. I would be honest about your intentions to keep yourself out of trouble.

I would represent the situation as it actually is and see what people can do

@Braden Burton what you are doing is a FELONY and is mortgage fraud. Do not proceed with your plan. It is against the law.

Thanks guys. I understand the law about primary residence, maybe I asked the wrong question. I am not going to lie to the lender.

My plan is to be living there during the rehab for 2-3 months and then likely hold a room and rent 2 rooms for the next 9 months to meet the qualifications before fully renting the house aspect of the property.

I can continue with that plan or fully rent the house and purchase as investment property. What I'm wondering is the best way to go about it as I'm going to spend 70k in rehab and want to make sure it's the most tax efficient. If it is my primary residence I cannot use repairs as a deduction, if it is investment I cannot use improvements as a deduction.

We currently rent and lease is up just after purchase so the primary residence law is not an issue. Would you purchase as primary or investment to create the best roi after taxes?

The rehab will become part of your cost basis either way, likely. The only way to write off during the current year is to place the property “in service” meaning rent it to tenants, then do repairs and buy appliances etc. You would have to rent very cheaply to tenants to compensate for a 70k rehab during their tenancy. And I think there is a limit on the write off for real estate anyway...it wasn’t intended for rehab. As far as financing as a primary and changing your mind later and moving out, people do it all the time...maybe after a year or so.

Originally posted by @Marian Smith :

The rehab will become part of your cost basis either way, likely. The only way to write off during the current year is to place the property “in service” meaning rent it to tenants, then do repairs and buy appliances etc. You would have to rent very cheaply to tenants to compensate for a 70k rehab during their tenancy. And I think there is a limit on the write off for real estate anyway...it wasn’t intended for rehab. As far as financing as a primary and changing your mind later and moving out, people do it all the time...maybe after a year or so.

 This is the "BARRR" method, really depends on existing condition of property if its even feasible that it could be rented as-is.

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