Converting primary residence to an investment property

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Converting primary residence to an investment property

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Rental Property Investor · Daytona Beach, FL · Member since 2018 · 21 posts · 3 votes

Hi guys,

Newbie here looking for guidance to do this right since there is so much info out there...

I bought a condo as a primary residence, lived in it for the 12 months required by the mortgage company, and now have a tenant moving in in February.

I wanted to contact my lender to inform them I am renting the property out now so they have it on file. I know I have to contact my home insurance company as well.

What I am confused about is collected rent. I am going to collect the rent electronically, but I am wondering whether I need to open a separate bank accounf to collect or can I collect in my personal account?

Also, the tenant gave me the security deposit and I put it in my personal account... do I need to put that in a separate account as well? The condo is in Ormond Beach, FL if that helps.

Any info provided here will be a great help. Additional info I should know in addition to the answer to my question is also appreciated. Thanks all!

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Darius Ogloza
Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
6y

Nicole: a homeowner's insurance policy may not cover losses incurred due to the negligence of a renter.  You need a landlord's policy on your rentals.  

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  • Aaron K.
    Specialist · Riverside, CA · Member since 2015 · 6k+ posts · 3k+ votes
    6y

    You can collect rent in your personal account as long as the property is in your name and not an LLC or S Corp or something similar.

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  • Kate Johnston
    CA · Member since 2019 · 29 posts · 8 votes
    6y

    Yes to what Aaron said. Using a personal account isn't a problem if the property is in your name or an LLC treated as a passthrough entity, but if you do make sure you keep accurate accounts of the incomes and expenditures associated with your property.

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  • David PierceBusiness Member
    Property Manager · Deland, FL · Member since 2019 · 74 posts · 28 votes
    6y
    To be on the safe side I would move the deposit into a separate account. One without any interest. Does your current account have interest? Then you have to account for the deposit's share!
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  • Darius Ogloza
    Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
    6y

    Why contact your lender?  It's none of their business.  You will need a landlord insurance policy.

    1Reply
  • Nicholas Covington
    Mortgage Broker · Dallas, TX · Member since 2017 · 657 posts · 275 votes
    6y

    @Darius Ogloza technically you are wrong about that. The bank has financial interest in the property, not sure how you can say it’s none of their business. They lent the money on premise of it being owner occupied and soon it will not be, which is more risk.

    I do agree however that it should be just left as is and just carry on with what you want to do. Just pay your mortgage on time and make sure you have proper insurance on it in case the tenants burn it down.

    Goodluck!

    1Reply
  • Anthony GaydenPro Member
    Rental Property Investor · Omaha, NE · Member since 2014 · 2k+ posts · 3k+ votes
    6y
    Originally posted by @Nicholas Covington:

    @Darius Ogloza technically you are wrong about that. The bank has financial interest in the property, not sure how you can say it’s none of their business. They lent the money on premise of it being owner occupied and soon it will not be, which is more risk.



    Not surprised a mortgage broker would say that.

    No, I have never informed any of my lenders of anything. Especially since nothing you are doing is out of line. As long as they get their money, they shouldn't bother you.

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  • Nicole Heasley Beitenman
    Investor · Youngstown, OH · Member since 2017 · 2k+ posts · 2k+ votes
    6y
    Originally posted by @Darius Ogloza:

    Why contact your lender?  It's none of their business.  You will need a landlord insurance policy.

    This. I converted primary to rental in 2019 and didn't tell lender or insurance. If I switch insurance companies, I'll disclose. But I felt no need to tell my current company. 

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  • Darius Ogloza
    Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
    6y

    I have never seen a term in a mortgage or deed of trust requiring notice to a lender of a change of occupancy on or after the terms of the loan have been met.  If you are required to live in the property for 12 months and do so, there is no right to notice at any time thereafter.  Point me to the provision by which a lender has a right to notice after the period of occupancy and I will send you a dollar.  

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  • Darius Ogloza
    Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
    6y

    Nicole: a homeowner's insurance policy may not cover losses incurred due to the negligence of a renter.  You need a landlord's policy on your rentals.  

    2Reply
  • Nicholas Covington
    Mortgage Broker · Dallas, TX · Member since 2017 · 657 posts · 275 votes
    6y
    Originally posted by @Anthony Gayden:
    Originally posted by @Nicholas Covington:

    @Darius Ogloza technically you are wrong about that. The bank has financial interest in the property, not sure how you can say it’s none of their business. They lent the money on premise of it being owner occupied and soon it will not be, which is more risk. 



    Not surprised a mortgage broker would say that.

    No, I have never informed any of my lenders of anything. Especially since nothing you are doing is out of line. As long as they get their money, they shouldn't bother you.

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    I am not sure what me being a mortgage broker has anything to do with this conversation. As I am not tied or responsible to anyone that is lending the money. So if anything I am the one that cares the least. Also just because YOU have never informed anyone does not mean that is the correct way of doing things.

    That being said, the rest of your post was pretty much already stated in mine.

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  • Nicholas Covington
    Mortgage Broker · Dallas, TX · Member since 2017 · 657 posts · 275 votes
    6y
    Originally posted by @Darius Ogloza:

    I have never seen a term in a mortgage or deed of trust requiring notice to a lender of a change of occupancy on or after the terms of the loan have been met.  If you are required to live in the property for 12 months and do so, there is no right to notice at any time thereafter.  Point me to the provision by which a lender has a right to notice after the period of occupancy and I will send you a dollar.  

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    The mortgage is only one document that is located in the too many pages you sign. You do in fact sign an occupancy clause statement somewhere in there for owner occupant homes. They normally do not state a timeline they just state that if you plan to not occupy the house at any point in time that you notify the lender. Whether or not they do anything isn't the point.

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  • Josue Vargas
    Real Estate Agent · San Antonio, TX · Member since 2017 · 814 posts · 466 votes
    6y

    @Shivam Kashan

    You don't need to open a separate account for the property, thought one could be useful to keep track of income/expenses. You don't need to collect deposit on a trust account, unless you are a Realtor (some states require this).

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  • Jonathan R McLaughlin
    Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
    6y

    @Nicole Heasley only problem with that is if you have a major claim involving the renter you won’t be insured. That’s an easy void.

    1Reply
  • John Mocker
    Insurance Agent · Norwalk, CT · Member since 2016 · 2k+ posts · 1k+ votes
    6y
    Shivam, You definitely need to inform your Insurance company. Depending on the company you will probably have to rewrite the coverage to a"Dwelling Fire" form (some companies call it a Landlord policy). There are a few companies that insure the rented condo on a Homeowners form but the majority do not. Call your agent and let them know and they will be able to advise you. It may also be the time to shop the insurance. The company that was best on the homeowners may not be best for the Dwelling/Fire policy.
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