Can I claim a second home/vacation rental as my primary residence?

[James Carlson]

The answer is no! 

And a criminal case this week shows why you shouldn't mess around with this rule. (For those averse to reading ... a State's Attorney is on trial for claiming on loan applications that she'd reside at homes when, it turns out, they were simply STR investments.)

I get this question from STR clients here in Colorado enough to concern me. I just say bluntly, "No, that's mortgage fraud, which is a federal crime."

I'm a little harsh here, but I understand where this question comes from. This site here and other real estate investing sites perpetrate the idea that you need to "get creative" with your investments, find loopholes, etc. There's nothing inherently wrong with thinking outside the box, but so often what's portrayed as "creative" with vacation rentals is actually just illegal. 

For anyone who thinks well, that's a stupid rule, here's the reasoning behind it. You get better terms on a primary residence -- lower interest rate, lower down payment requirements -- because if you encounter financial strain, you're most likely to pay the mortgage on the roof over your head. Your rental property payment comes second. So to a bank, rental properties are a slightly higher risk and the terms are meant to offset that higher risk to them.

Rant over.

[Kelly O'Keefe]

Thanks for the post and tying it to a court case. I have been hearing this question more and more lately