How to legally "live" in an owner-occupied investment property

Question

Hi all! I'm a RE investing newbie and hoping to get some advice from those more experienced. :)  I am looking to buy my first investment property in the next few months... looking at 2-unit MultiFamily properties.  I have been pre-approved but *only* as an owner-occupied property (financing would not work as NON-owner-occupied as my salary income is low at the moment (currently taking a break from my 9-5 job)).  If the property is zoned as a legal 2-unit but has an un-zoned (unfinished) garden unit, could I "live" there (while I fix it up) and still be ok?  That is, I'd keep some stuff there, have some mail delivered there, etc. but would still live at another apartment most the time (where my wife and I have a lease for another 11 months).  Would this arrangement still be workable/ legal/ advisable?  Any direction or tips would be hugely appreciated... thanks in advance!!!

Ned Carey · Answer

If your intent is to fix up the two unit and ultimately live in one of the units that may be OK depending on the loan.  This would have to be disclosed to the lender, if it is OK with them then that is OK.

If your intent is to deceive the bank you are heading down the wrong path.

J Scott · Answer

No, not if you're living at "another apartment most of the time."  The purpose of an owner occupant loan is to allow you to purchase a property that you make your primary residence -- you live there, you get your mail there, you're registered to vote there, etc.

While you might get away with it, here are some things to consider:

-  You have another lease, so you'd have to explain why you had 11 months left on a lease and then bought a primary residence;

-  It's an unfinished area, nobody is likely to believe you live there vs an apartment you also have control of;

- You've posted in a public Internet forum, presumably with your real name, that you're considering breaking the law.

Then there are the code violations of pretending your living in an unzoned space, which may or may not impact your loan status.

Hans Restuccia · Answer

if you have a legitimate business, and you form a corp. and you transfer the property to the corp. for a legitimate business purpose, then you can draft a lease and rent the property to you as an individual tenant- however, I suggest you obtain proper legal counsel for all such matters.

Trevor Novak · Answer

Thanks for the insight, everyone... genuinely appreciated.  As any potential property I look to buy *is* where I intend to live (owner occupied), your tips provide good direction on how to (legally!) navigate the transition period between renter and owner/landlord.  Because the timing on buying property has more variability (seller may not accept offer, bank may not approve short sale for months, etc.), it's tough to exactly plan when and how to jump out of renter mode (with a defined lease) and into owner-occupied territory without months and months of double payments.  Thanks again.

Bill Gulley · Answer

There are the issues J. Scott pointed out.

While I have a reputation of being Mr. Rules and Regulations (I suppose) I think you can accomplish your goal while complying with residency requirements.

If both properties are in the same county or taxing authority and you have personal property taxes, that can be an issue. Generally, it's where you select as your principil residence and being there more than 6 months of any taxable year.

You have no obligation beyound meeting primary residence requirements really. No one is going to say you must sleep and eat there as you could take a 9 month world cruise! Your lease has no legal occupancy requirement that should be an issue so long as you don't sub-let. So long as you are the only one there and rents are paid, I doubt any owner would have an issue with your arrangement. That becomes a second home.

If, your tax home is the purchased property, your driver's license shows that address, you vote in that district, that is sufficient to establish residency. Your bank account should be your tax home, somewhere on the account at the bank, it doesn't have to be the address on the checks, but probably best to do that. You can have your mail delivered at your office, your mom's house, to a mail servicer or anywhere, that alone doesn't establish residency. Many yacht types that cruise most of the year have this issue and they also own homes with mortgages, so it's your tax home that counts first. Your bank account is a legal document where you need to show your residence. Your driver's license becomes an issue under state requirements, so you should use your tax home. Voting just adds to your justification, you can only vote based on your residency in a district, declaring that for voting is just a justification as we don't have voting requirements to be registered.

As to zoning, if you have a bed, a means to prepare food, personal items like soap and a toothbrush, a place to sit, a couple changes of clothes in a closet, no city or county type can give you any flak or claim that isn't your address, nor can anyone else. A 1-4 family dwelling is not an issue for you.

Insurance is another issue, if you really are gone and rarely there, you need to inform your agent as they may require a different policy. That can become a lending issue, so I suggest you be there enough to conform to insurance requirements for a standard homeowner's policy.  
  
Home is where you hang your hat and your legally claimed residence is.
 No lender will have an issue with your arrangement if you follow these issues. IMO, you'll not have any issues for 11 months.

So, while we follow the letter of occupancy requirements you can still accomplish your goals, much like following any other rule, regulation or law.  :)

How to legally "live" in an owner-occupied investment property

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