Buying Second Home To Run A Business Out Of?

Question

Hello, friends! In 2020 I'd like to purchase a second home to use exclusively as a business property.

I own an online retail company and we run out of a rented warehouse and I'd like to take my rental dollars and invest them in a house instead. I would rather do a home than a commercial property because of the flexibility of using it in the future. If I decide to do something different I can always rent a home out but a warehouse is more vulnerable to market downturns, also the market is oversaturated for warehouse rentals already.

I plan to use the entire home for the business, or at least one upper floor. Then later possibly build a garage on the property and rent out the home itself and run the biz from the garage. I could also turn part of it into an air bnb or install a MIL apartment. Basically, there are lots of options. I do know that I can't duplex it legally, so I would always occupy part of it.

The biz just ships goods all day long. Typical Amazon business. No real noise or nuisance to neighbors.

Because I will spend 8-10 hours at this place DAILY does that count as an owner-occupied loan? What if I end up renting out part of it? Will they feel weird about it being for a business and not personal? Should I disclose my intentions or just tell them I plan to occupy?

My primary house is on a conventional loan and I am quitclaimed onto it.

Anyone know what interest rate and down payment I might be looking at? Hoping for 10% down on the cash side.

My financials are super solid. We have no debt and a few million in stocks, retirement and our personal home equity. Husband is gainfully employed and credit is in the 850 range. My business has been profitable for three years but I am the sole owner. One employee will probably come to the property daily to help with shipping, but no customers.

I've purchased homes before but never a second one, so this one feels scary. I don't want to tell the bank the wrong thing.

Cynthia Webley · Answer

Thank you. I never thought about it from the tax side!

Kathy Henley · Answer

It is the income tax rules that may guide you @Cynthia Webley. As you say, the business may be only temporary. If you buy it in your name, there is a nice home business expense that is based on the square footage.  The business will pay its portion of everything - insurance, utilities and interest expense. Talk with your lender and be straight about it. It sounds like you will qualify to borrow because you have assets. Talk with your CPA so that you know the tax code regulations.  CPA's know stuff and can prevent bad things from happening. Don't overlook city regulations. Some cities are fussy about the impact of businesses on traffic. Some cities might re-classify the property tax from residential to commercial, like when a law office takes over a property that was once a home. Ask ahead of time. It can be re-classed again, should you return it to residential.