Experience buying a duplex as primary residence not living there?
Member since 2021 · 5 posts · 9 votes
Experience buying a duplex as primary residence not living there?
Most Popular Reply
SC · Member since 2020 · 3 posts · 15 votes
5yThere are no tax implications because you'll be in jail for fraud
34 Replies
- SC · Member since 2020 · 3 posts · 15 votes5y
There are no tax implications because you'll be in jail for fraud
- Rental Property Investor · Cleveland, OH · Member since 2020 · 3 posts · 4 votes5y
If you used an FHA loan you'd be commiting mortgage fraud as you need to live in the property for at least a year before moving out.
- Real Estate Agent · Sisters, OR · Member since 2014 · 1k+ posts · 1k+ votes5y
The upside is in mortgage fraud jail you will probably be a bad ***!
but you have to live there or at least plan to in the property for one year. - Investor · Chapin, SC · Member since 2020 · 16 posts · 22 votes5y
Just to shed some light here, I did something similar with a triplex...however, "I am currently living and receiving mail there in one unit while I and my contractors fix up one unit..." then we moved me into the other unit put it on Airbnb to rent out while I'm out of town and then we went to work on the other unit. This is a good way to avoid committing fraud but still reap the benefits of renting property. Luckily if one unit books out at 100% which it does sometimes...I'll just move into one of the units and fix it up...all this is hypothetical. I've never stayed the night in my house downtown but nobody can prove that.
You've definitely got to be careful because the consequences could be severe but there's plenty of work arounds.
All that being said, my wife's primary residence is about 30 minutes away on the lake...we spend a lot of time there but nobody comes to check and make sure I'm spending the night at my house regularly. Good luck!
- Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes5y
@Austin Marvel that's clearly still violating the OO provisions. Your AirBNB option was probably ok, as long as you actually live there and it's just when you're travelling for work. But clarifying that you've done this several separate times using your wife's OO loan on the lake house ect point to the overall intent to defraud. I'm sure you'll disagree, but based on your descriptions you're clearly not actually fulfilling the requirements for the OO loan you purchased using.
- Investor · Chapin, SC · Member since 2020 · 16 posts · 22 votes5y
@Matt Devincenzo I'm definitely following the rules.
My wife bought her house under FHA ahwile back and I bought a triplex downtown FHA because work kept me there late at night. Because I'm an investor and not a slumlord I needed to have the units looking good enough to where we could feel comfortable staying there at night. That being said, I've been rehabbing one unit at a time while I let my tenant lease expire then I move into their unit and rent out the fresh one. MY intent was to furnish it, live in it full time but then someone said hey this would make a great airbnb for when you're gone of course... If there's a way to improve my strategy and make sure nobody would consider it potential fraud I'm all ears. That's the last thing I'd want anyone to think!
- 5yJordan MoorheadBusiness MemberReal Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
@Andrew Johnson you're asking how to commit fraud on a public website? Maybe just buy it and live in it? I've been doing that since 2016 and have done very well.
Again. This is a public website and forum posts can be seen via a simple google search. If I am a lender and I search your name I will see that you are inquiring how to commit fraud. Don't commit fraud.
@Austin Marvel you sign a piece of paper when closing on an FHA loan that says you won't use it as a short term rental. Check the loan documents you signed and you'll find it.
The Moorhead Team5140 Reviews - Investor · Member since 2021 · 6 posts · 6 votes5y
@Andrew Johnson mortgage fraud. Keep reading and researching. Consult the proper channels and make educated decisions, invest in your education before jumping into a decision that’s unethical or illegal.
- Member since 2021 · 5 posts · 9 votes5y
@Jordan Moorhead No, I asked a simple question requiring about the legality of it, that is the point of these forums to ask questions, correct? I did not say I was going to do it. But I definitely know who NOT to go to for a mortgage due to your accusatory tone. And FYI, there are a million people with my name.
- Member since 2021 · 5 posts · 9 votes5y
@Austin Marvel Yep, I want to live in one side but this particular duplex is already rented and I was trying to do some research on rental tenant transfer etc. But now I see that I couldn't end the tenants lease early etc.
I won't be using an FHA loan to buy the duplex.
Thank you for the info and help!
- Realtor · Austin, TX · Member since 2016 · 1k+ posts · 1k+ votes5y
@Andrew Johnson it's a good thing you asked here first!
Specifics may change based on your particular state guidelines but a general rule for an owner occupied loan will require the borrower have the intention to occupy the residence within 60 days. Circumstances arise that may affect that (job change for example) but if the intention is to deceive and profit that falls clearly in the wrong and there are many BP forum responses from attorneys that echo that sentiment. @Jordan Moorhead makes a good point on reviewing loan documents to ensure you are following all agreed upon loan provisions and I would add that you can always ask your loan provider / officer for clarification as well.
- Real Estate Agent · Sisters, OR · Member since 2014 · 1k+ posts · 1k+ votes5y
Dude make it happen! I have seen the most redonkulous stuff people have gotten away with. If in good faith you can commit to having the place be your primary residence for 1 year you are on solid ground. If something pops up like an opportunity this in my opinion and to my knowelage is fine to go after and move out of the home. I used an FHA for my first deal and lived there for a year myself, but bought it as an investment not because I loved the home. I wouldn't encourage someone to purposefully deceive anyone (seems obvious to me you are not doing that) but the reality is if I would have moved out early I would not be eating slop next to Baba right now.
- Member since 2021 · 5 posts · 9 votes5y
That is the goal, buy a duplex and rent out one side. I am a first time home purchaser and have already been approved with a 3% interest rate on a conventional loan. It would be nearly impossible to go with an FHA in this market. I just put in an offer on a duplex where one side is currently rented for 1700, 3br 2ba 1720 sq feet and that is 500 below market rent currently. Unfortunately lost out to an all cash investor that bid slightly more than offer.
- Member since 2021 · 5 posts · 9 votes5y
@Max T. Sorry man we don't need anymore karens in the thread
- Investor · Chapin, SC · Member since 2020 · 16 posts · 22 votes5y
@Andrew Johnson with the mic drop! - Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes5y
The point was if you are truly new here. Simply click on the magnifying glass in he upper right before asking a question. This one has been asked more than 100 times.
It’s pretty simple. If your drivers license doesn’t say the new address, if you’re not paying owner occupied property taxes, if the insurance is landlord or renter policy instead of owner occupant. It’s pretty obvious you’re guilty. Especially if they were never switched.
The cool part is maybe it’s 5 years from now when you finally have your stuff together that you get busted, not now when you’re dirt poor. Especially cool if you’re married or have kids by then.
All this effort to screw the bank that’s willing to borrow you money. Gives me so much faith in my fellow investor.
What? I can save 1/2 a percent in interest on my loan for 29 years and put down 1/5th as much by living there for a year? That sounds like an awesome deal! How about I just lie/cheat and steal instead? I mean you are stealing right?
- Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes5y
Buying a property as a primary residence with an owner-occupied loan and then not living there is classic mortgage fraud, which is a federal crime.
If you're planning to buy a duplex and live in one side while renting the other, that's a different story and there are loan products that allow you to do that in a building up to four units (but of course you'd need to move in to one of the units in order to qualify for an owner-occupied loan).
Inaccurate representation of occupancy or submission of inaccurate information/ document falsification is mortgage fraud. Do plenty of people get away with it? Sure. But people also get caught and if/when that happens the note could be called due in full immediately and there could also be large fines and even jail time. There could also be insurance issues as there are separate policies for owner occ and rentals, and if you have a claim on an owner-occ policy but it turns out you're not living there, your claim could be denied. For tax purposes it would also be fraud to claim a property as a primary residence if it is not your primary residence.
To avoid fraud, ensure that there are no misrepresentations of the truth made like stating that the property will be your primary residence if you're not actually planning (or able, if both sides are tenant-occupied currently with longterm leases in place) to use it as your primary. And just to clarify since some of the comments in this thread have muddied the waters a bit with some questionable strategies, you can have ONLY ONE primary, which is inherent in the term primary residence, and yes of course you have to live there, and yes lenders do check by sending mail to the address, calling, and exterior inspections. Is it common for people to get caught? I'm not really sure and wouldn't want to find out firsthand personally. Stuff like this was rampant from 2003-2010 but things have gotten much more strict since then.
Common forms of clear-cut OO mortgage fraud would be: renting out the property without occupying it, using it as a second home, running a business out of it, buying for another person who cannot qualify for an OO loan by themselves, or renovating without moving in (unless there is a renovation provision in the loan/it is a renovation loan and this has been disclosed to the lender). OO loan requirements vary by lender and loan product, but most require the borrower to move in within a certain number of days (often 30 or 60), then live there consistently for at least one year (sometimes more or less) before moving/renting it out. you will need to agree to this in writing on many of the stacks of paperwork you'll be signing at closing of course.
Life circumstances change however, so if for example you lost your job and needed to move to a different city for a new job, got an illness and needed to move in with your parents, or got married, got pregnant, etc. and needed to move for a legit reason then this would be acceptable as long as there was no intent to commit loan fraud. You would need to change insurance from an owner-occ policy to a rental policy, and notify the lender of the change of address/ reason for moving if necessary/ if it's prior to term that you agreed to live there for. However if the move is obviously part of a for-profit scheme, the likelihood of it being considered loan fraud would be high.
- Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes5y
@Andrew Johnson I think your thread got off track a bit with some of the other replies. It seems you genuinely had the question re occupancy, which I think you've had pretty well answered...along with maybe some lecturing and soap box'ing that could have been left out of the discussion.
Here is what Freddie Mac says constitutes occupancy, and you can evaluate for yourself.
Primary Residence
A Primary Residence is the residential property physically occupied by an owner as the principal home domicile. Among the criteria the Seller should consider in evaluating whether a property is a principal home domicile are the following:
- It is occupied by the owner for the major portion (51 percent or more) of the year.
- It is in a location relatively convenient to the owner's principal place of employment.
- It is the address of record for such activities as federal income tax reporting, voter registration, occupational licensing and similar functions.
- It possesses the physical characteristics to accommodate the owner's immediate dependent family. These characteristics are those traditional to both the owner and the neighborhood.
- The Borrower states an intention to occupy the property as a Primary Residence.
Freddie Mac may, in its discretion, determine that a property is not a Primary Residence.
What @Austin Marvel suggested as a possibility to 'occupy' with the unit being renovated, or listed on AirBNB you would fail the 51% of the time criteria. The other items like mail, DL etc are all evidences of the fact that you in fact live there but the specific criteria is 51% of the time or more. Doing those other things without physically living in a unit just confirms your intent was never to OO the space, and statements like "they can't prove it" are shortsighted. The lender you will notice does not have to 'prove' anything they can just decide they disagree with you at their discretion.Hopefully this is helpful.
- Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes5y
Originally posted by @Austin Marvel:
Just to shed some light here, I did something similar with a triplex...however, "I am currently living and receiving mail there in one unit while I and my contractors fix up one unit..." then we moved me into the other unit put it on Airbnb to rent out while I'm out of town and then we went to work on the other unit. This is a good way to avoid committing fraud but still reap the benefits of renting property. Luckily if one unit books out at 100% which it does sometimes...I'll just move into one of the units and fix it up...all this is hypothetical. I've never stayed the night in my house downtown but nobody can prove that.
You've definitely got to be careful because the consequences could be severe but there's plenty of work arounds.
All that being said, my wife's primary residence is about 30 minutes away on the lake...we spend a lot of time there but nobody comes to check and make sure I'm spending the night at my house regularly. Good luck!
You didn't avoid committing fraud, you just came up with lies to avoid get caught. Do you even understand the difference?
Primary residence is where you sleep, so by not sleeping there one night, you are committing mortgage fraud. Your wife having a different primary residence is also evidence of mortgage fraud. There is danger in your mindset, because it becomes a slippery slope. You start to view legality in terms of "how can they catch me" instead of "how can I follow the law". Criminals always get caught and usually it happens because they brag about their crimes. Everyone ever convicted of a crime thought they had a "work around", haha.
- 5yMindy JensenPro MemberBiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
@Andrew Johnson, I've seen this question asked before - and even had it in my own head before I learned the rules.
It can be easy to think, "Who cares? I'm only lying to a bank, not an actual person." (That was my thought.)
But when I found out that it is a felony, that stopped me as I hope it stops you. A felony conviction isn't worth it to me.
You asked about the legalities, and that's what this site is for, to learn.
Playing Devil's Advocate, will they catch you? I don't know. No one ever came to my house to make sure I was living in it. But that doesn't mean they won't come to check on you.
Now that you've been made aware of the laws surrounding owner occupied loans, you can make an informed decision on how best to move forward.
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes5y
Originally posted by @Andrew Johnson:
Hi everyone,
Anyone have experience with buying a duplex as your primary residence but not actually living there and renting it out? Contrary to living in one side and renting out the other?
Legality of it, tax implications etc?Thanks for all the help!
Well.......It's mortgage fraud, so there is that.
- 5yDaniel SmythPro MemberRental Property Investor · Rockford, IL · Member since 2019 · 471 posts · 342 votes
@Nick Pacanowski
No. List one person that has happened to!
I have yet to see the case.
I have also not seen a bank that will call the note due when such happens.
Curious to see when this has happened.
- Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes5y
Originally posted by @Daniel Smyth:
@Nick Pacanowski
No. List one person that has happened to!
I have yet to see the case.
I have also not seen a bank that will call the note due when such happens.
Curious to see when this has happened.
Plenty of people get busted for mortgage fraud. Granted, it's likely a low percentage compared to those who get away with it, but it is a crime that is enforced. This has been the case ever since the global financial crisis of 2008-2010 which was of course caused in large part by unscrupulous lending practices and mortgage fraud. The FBI, SEC, etc. have dropped the hammer on fraudulent activity since then. I don't know anyone personally who has done time or had their loan called due for mortgage fraud either, but a quick google search produced this:
https://www.ussc.gov/sites/def...
2020: If I'm reading the data correctly, it looks like around 65,000 cases reported/investigated, with 4,500 of those resulting in mortgage fraud convictions, of which 87% were sent to prison, with average sentences of 18 months (down from avg. 22 months a few years before). Maybe a mortgage broker can weigh in on this and enlighten us on how often loans are called in these scenarios. Even if there's a small chance of getting caught, I'm not going to risk 18 months in the clink plus big fines and having my loan called plus ruining my creditworthiness just for a lower rate personally, but I'm not a gambling man.
- Investor · Chapin, SC · Member since 2020 · 16 posts · 22 votes5y
Drama. I didn't commit fraud, this is my primary residence and I sleep there most nights...when we're in town and all of my mail comes to that address. These are brand new renovated units, I can choose between the sizes; Small, Medium & Large (3) depending on if I have just my wife, my whole family, friends ...etc.
Instead of traditional long term renters for the other units that I'm not using I chose to go with short term, it's a great location and I love hosting guests but also being able to have access to each unit depending on how I'm feeling that week. One of my main clients is a 3 minute drive away...I'm not getting around anything...this house is much closer to the airport and the highway than my wife's house out on the lake. Since we're constantly traveling to visit family and friends...this house was the perfect solution.
As for her house, we stay out there on the weekends that we're in town & sometimes rent it out to friends when we're traveling.
For my particular situation, you could see how from the outside it may seem sketchy but I assure you it's not.
My lender knew everything I was doing and talked in depth with my lawyer about this to make sure we did it the right way.
When I was using quotes and weird verbiage that was just to imply that in theory some situations can be catered to.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.