Convert Primary to Rental

[Brian Masotti]

Thinking about renting current primary home and buying a new primary home.

Are there any issues if there is a current loan on "current primary" Thinking since mortgage rate is much lower and wasn't sure if there were post implications. Is this an advisible strategy, in buy a primary, living in it and them moving forward in this fashion?

Also with this, would you look to transfer the old property to llc to lower potential liability ?

Thanks in advance for your help!

[David M.]

@Brian Masotti

Unless you've been at your current residence for less than a year and depending on what sort of loan you ahve, there shouldn't really be much of a concern about renting it out.  Just make sure your primary home is a good "rental."  Figure it or talk to a few professionals if this is the best direction for you, especially you will eventually lose the sec121 exclusion.

For some people its a way to go to build their rental portfolio.  It all depends on the investor's circumstances.

I wouldn't transfer the property into a LLC. This posted nearly every day on BP. It's really up to you, your circumstances, and your risk tolerance. LLC's are exactly a panacea for asset protection. You really need to make sure you maintain and protect your corporate veil. Those investors without a LLC just maintain their properties and have both insurance policy on the property and an umbrella liability policy.

Those that advocate LLC's will have one or more rentals in a LLC's. You still need to carry insurance and really should have an umbrella policy.

One major sticking point with people is they don't want to "pay for having the LLC." Legal entities such as LLC's are not eligible for conforming residential loans. You have to use commercial financing which has higher interest rates and generally worse terms than residential loans. Moving Title between your personal name and the LLC (which many residential loan officers advise since they are looking for a way to sell you a loan as opposed to preserving your corporate veil) just looks like co-mingling or using the lLC as your alter ego in my layman's opinion. Besides, you need to hold Title and carry the mortgage in the LLC to really have the asset protection.

Talk to a few qualified professionals.  Good luck.