Buying a personal property, but doing MTR or STR until we are ready to live in it.

[Eric Sato]

I currently live in Japan, but am a US citizen and am planning to move back to the United States (Colorado Springs area) after 18+ years living abroad (I also have a thread about buying rental properties as an investment). At one point I will be looking to buy my own personal home with intent to live in that home about 1->2 years from now. 

Is there a smart way to potentially purchase a home now, rent it out (MTR or STR, or even perhaps fixed term 2year LTR), and then move into it myself with my family once we are back in the USA and ready to move in (we intend to live with family at first).

My thought process is

1. Build up my personal equity in the house starting ASAP

2. Make some potential cash flow on the property in the meantime

3. If in the end we do not end up wanting to move in, we keep it as a rental property

4. This first home would most likely not be our "long term" home, as I am thinking of some sort of house hack even. 

What I really do not understand is how would the loans work out, if I do intend for it to be a personal dwelling, but at first I would rent it out... Then what about potential refinancing, and any other tax benefits that come from actions taken on a Personal Home. 

Thank you in advance for any advice and or resources. 

[V.G Jason]

Would you buy it as a primary or as an investment?

[Eric Sato]

Quote from @V.G Jason:

Would you buy it as a primary or as an investment?

 Goal is to live in it as a primary. But, I want to potentially buy it before I am actually able to live in it, and rent it out in the meantime until I personally can move in. 

[Hamp Lee III]

Not sure you’ll be able to use the benefits of owner-occupied property (and mortgage) as you will not live in the property for 1-2 years.

I recommend speaking with a lender, but your loan may be designated as an investment property initially. Investment properties often have higher interest rates and required amount for a down payment.

I wish you all the best.

[Eric Sato]

Thanks for the input, @Hamp Lee III. I was afraid of that. I will see what a lender can do, but if needs be, I will just wait until I know I can move in before purchasing for owner-occupied property. 

[Tanner Pile]

@Eric Sato

You would not be able to use a primary residence loan with this idea. When you sign the closing documents you are required to state when you will be moving into the property within 60 days. You would need to do 20%+ down for the purchase. 

[Ben Einspahr]

@Eric Sato Love the idea and thinking outside the box. You best option would be 2nd home loan. Must stay at home minimum 14 days out of the year. Would be able to put as low as 10% down. But to be frank, when it comes to the 14 days the right hand does not speak to the left... if that makes sense.
Regarding MTR vs. STR. MTR would be your best bet. STR rules and regs can be a PIA to navigate. Here is a link to the rules and regs to dive into it.

[Eric Sato]

Quote from @Ben Einspahr:

@Eric Sato Love the idea and thinking outside the box. You best option would be 2nd home loan. Must stay at home minimum 14 days out of the year. Would be able to put as low as 10% down. But to be frank, when it comes to the 14 days the right hand does not speak to the left... if that makes sense.
Regarding MTR vs. STR. MTR would be your best bet. STR rules and regs can be a PIA to navigate. Here is a link to the rules and regs to dive into it.

Oh, interesting. So if I am reading this correctly. 
- purchase the property, furnish it
- move in, and live there personally for at least 14 days (out of the year)
- while I am not there, SRT or MTR it out
- perhaps even travel back to USA and live in it again while I am there on vacation (I do travel to USA quite a bit)
- then when I do finally move back 1-2 years from now, finally do the full move in

I will continue to read further into things. Thanks for the information, and the kind words! 

[Ben Einspahr]

@Eric Sato you go it :)

[Bonnie Low]

The option of using it as an STR or MTR is a solid plan until you move there, but as others have said, the financing is what'll trip you up if you're looking to get in with a low down payment as an owner-occupied property.

[Eric Sato]

Quote from @Bonnie Low:

The option of using it as an STR or MTR is a solid plan until you move there, but as others have said, the financing is what'll trip you up if you're looking to get in with a low down payment as an owner-occupied property.

 Yeah that is the impressions I am getting! 

I will look into potentially furnishing it and living in it personally for a few weeks, then doing the STR/MTR when I go back to Japan. Then move in again once I am back in the USA. Hopefully that could allow me to get lending / financing as a private/personal/owner occupied property.

[Ryan Thomson]

@Eric Sato I think its a great idea to grab one now so you can have something more affordable when you move here in the future. Cashflowing in Colorado Springs will be tough, but there are a couple strategies that have potential to make that work. 

[Eric Sato]

Quote from @Ryan Thomson:

@Eric Sato I think its a great idea to grab one now so you can have something more affordable when you move here in the future. Cashflowing in Colorado Springs will be tough, but there are a couple strategies that have potential to make that work. 

 Hi @Ryan Thomson. Thanks for the information. Is general cash flow investing strategies not in a great spot with Col Springs atm in general, or more specifically due to my situation? (If you don’t mind me asking). I saw your DM as well. Will get back to you shortly! 

Also, when you say "great idea to grab one now so you can have something more affordable when you move here", is this generally because prices and or rates will continue to make total PITI increase over the next year? Or something else.

[Ryan Thomson]

Quote from @Eric Sato:

Quote from @Ryan Thomson:

@Eric Sato I think its a great idea to grab one now so you can have something more affordable when you move here in the future. Cashflowing in Colorado Springs will be tough, but there are a couple strategies that have potential to make that work. 

 Hi @Ryan Thomson. Thanks for the information. Is general cash flow investing strategies not in a great spot with Col Springs atm in general, or more specifically due to my situation? (If you don’t mind me asking). I saw your DM as well. Will get back to you shortly! 

Also, when you say "great idea to grab one now so you can have something more affordable when you move here", is this generally because prices and or rates will continue to make total PITI increase over the next year? Or something else.

 With the run up in prices and high-interest rates, it is more challenging to make anything cashflow in Colorado Springs. However, the appreciation over the last ten years and probably going forward make losing a couple hundred in cashflow a month still very worth it (if you can afford to hold the house with negative cashflow). I have a spreadsheet that captures all of these returns if you want to take a look at it. 

"grab one now".  I say that because if prices go up and rates go up you will be happy you bought now. And you don't know what's going to happen in the market so a better investment strategy is "buying real estate and waiting" instead of trying to time the market. 

[Bill Brandt]

The only downside is because it’s not a primary first, you will never qualify for 100% tax free capital gains. What I mean is if you rent it out for 2 years and then live there for 8 years before selling. 20% of the appreciation would still be taxed. Not a huge deal, but might wipe out any gains you get by renting it out for the 2 years. (I would expect those 2 years to be a loss as well.) For this to be a good deal you have to expect big price run ups and interest rates to stay high. I’m not saying to not do it. I’m saying don’t do it expecting a financial win. Do it if you find your DREAM home. 

I was going to add you might be able to furnish it with your dream furnishings and expense those as well, but you probably won’t have any taxable income at the time unless you’re paying US taxes on your foreign income. 

[Eric Sato]

Quote from @Bill Brandt:

The only downside is because it’s not a primary first, you will never qualify for 100% tax free capital gains. What I mean is if you rent it out for 2 years and then live there for 8 years before selling. 20% of the appreciation would still be taxed. Not a huge deal, but might wipe out any gains you get by renting it out for the 2 years. (I would expect those 2 years to be a loss as well.) For this to be a good deal you have to expect big price run ups and interest rates to stay high. I’m not saying to not do it. I’m saying don’t do it expecting a financial win. Do it if you find your DREAM home. 

I was going to add you might be able to furnish it with your dream furnishings and expense those as well, but you probably won’t have any taxable income at the time unless you’re paying US taxes on your foreign income. 

 @Bill Brandt thank you very much! Yes you are correct, my CPA does amazing wonders in reducing my US taxable income. US does try to tax everything I own even though its JPY based income… but in the end the magic if international Tax tricks always comes through, and as such, I wouldn’t have much US taxable income to offset at all. 

Thank you as well @Ryan Thomson for the clarification. 

Maybe my best course of action is as follows, “don’t mix personal and investment (for now), until I am US based (US W2) and ready to live there.”

1. I pursue my personal (owner occupied) residence after I move there and can actually live in it for the 2 years (2 years? Or basically make sure I spread across 2 tax years?), before potentially moving out and changing it to LTR/MTR. 

2. If I want to purchase something now to “get in the market as soon as possible”, I treat it strictly as an investment property, and go straight for a MTR or LTR. 

I am okay with taking cash flow losses month on month/year on year, to let appreciation do its thing. 

It does however seem though that if I want to buy a property now, for lending, I would most likely need:

1. DSCR loan (not too familiar with these, but my instinct is "I'm scared, cuz its a higher rate! Oh no!"

2. Nonconventional financing (private lender, “hey mom, can I have 200k?”)

3. Find a lender that WOULD be open to a conventional loan even if I don’t have a US W2, perhaps if I show them my JP statements and tax returns, and screenshot of Bank of America and fidelity balance? 

[Ryan Thomson]

@Eric Sato One point to add on your "live in it for 2 years" point. If you are house hacking you only need to intend to live in it for 1 year.

The two year advice you'll hear is because if you sell it and you have lived in it for 2 of the last 5 years you can sell it with no capital gains tax. If the plan is to keep it for the long term, then there is no added benefit of living in it for 2 years at the beginning.