Convert Primary to Rental

5 Replies

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!

@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.

@David M.

Thank you David.

Thinking about strategies, to get into the market. Figured this method was a good way to clean up property while living in it, elevating value and instead of going flipping route build a more long term steady form of the income. I wasn't sure though if there was red tape I wasn't thinking about.

My situation, moved to Jax FL. Bought a condo, currently have been renting it for 2 yrs ( I've been managing it). Bought a house and living in it for 2 yrs, though recently took advantage of conventional fixed 2.875 rate to refi.

In a long term relationship, so thinking.. if things remain serious. Rent both her and my current properties ( 3 bedroom homes) and buy something together. In this case...

She has 300k cash flow in her property, mine is closer to 100k. Trying to think about best options to sustain longer term investment. I was thinking of saving to pay for new home directly without touching equity on homes. Not sure best strategy and if that makes sense or to take some out of current properties to help fund new home.

@Brian Masotti

This house hacking strategy is fine. You just need to be able/willing to keep moving every year or so. if you didn't want to keep moving, you could use the brrrr method assuming you are able to have a property fixed up and were able to find a suitable run down property. Any other method than the house hack you will have to use conventional investment loans (usually min 20% down with best rate breakpoint at 25%, also about 1% to 1.5% higher interest rate). Its all trade-offs and what works best with your investment strategy and "life."

Good luck.

I would recommend keeping track of all repairs and document what you've done to the property to make sure your basis is correct come time you decide to leave and rent it out. 

I am in the same situation, following this post. Is the BP Rental calculator suited for evaluating this type of conversion? I am unsure on if the ARV and mortgage terms need to be adjusted to current, or if I need to evaluate from day zero when I purchased the property 2 years ago. I have all expenses logged for an accurate analysis as well.