Converting a primary residence to a rental property is a common strategy when homeowners relocate but want to keep the property as an investment. The conversion involves significant tax, insurance, legal, and financial changes.
4 steps across 1 sections
1. Mortgage Considerations
- Conventional loans: Generally allow conversion without issue. Notify your lender.
- FHA loans: Require owner-occupancy for at least 1 year. After that, conversion is typically permitted.
- VA loans: Require owner-occupancy intent at origination. Conversion after living in the home is generally accepted, but consult your lender.
- Refinancing: If you want to pull equity or lower your rate, you may need to refinance to an investment property loan (typically 0.5-0.75% higher rate).
Common Mistakes
- Not getting an appraisal at conversion
- Keeping homeowner's insurance
- Ignoring HOA restrictions
- Not accounting for vacancy and maintenance
- Missing the capital gains exclusion window
Pro Tips
- Get the appraisal before the first tenant moves in
- Consider a property management company
- Create an LLC or land trust
- Build a maintenance fund
- Keep the property for at least 27.5 years
Sources
- Tax Implications of Converting Primary Residence to Rental — Landlord Studio
- How to Convert Primary Residence to Rental — DoorLoop
- Converting Primary Residence to Rental — Stessa
- How to Turn Your Primary Residence into a Rental — Obie Insurance
- Tax Implications of Converting a House to Rental — Porte Brown CPA
- Conversion of Primary Residence to Rental — Azibo
- Converting a Home to a Rental: Tax Implications — SSA CPA