Rental Basics in Sacramento>Question Details

Hazel0982, Renter in Concord, CA

First time house buyer, wanting to turn house into a rental property.

Asked by Hazel0982, Concord, CA Wed Jun 13, 2012

Should I own a house first, before turning it into a rental property?

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Bob Willett’s answer
Earlier in my carrier I did three owner-occupied loans for a young couple about 2 to 3 years apart. First they bought a 4-plex and lived in one of the units. Then they bought a duplex about two years later and rented the other unit and all the units in the 4-plex. Three years later they were expecting their 2nd child and wanted to move into a single family home. The 4-plex was generating a very good cash flow and the duplex was about even. They had about $100,000 in equity in the two properties. Not too bad for a couple of 24-year-old grocery store clerks.

Buying a home to live in and buying a home to rent are two very different transactions. Everything from the laws that pertain to the loan to what rights you have as an owner are different. If you buy the home and live there for a full year, it is unlikely that you would have any problems with an owner-occupied loan. HOWEVER, if you state that you will occupy the home and then turn it into a rental in less than 1 year you could be in some serious trouble.
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0 votes Thank Flag Link Thu Jun 14, 2012
I am guessing that you are thinking of buying a home and get the loan as a first time buyer/owner occupant and then turn it around as a rental. The question is how long should you live in the home first. This is a question for a mortgage broker. But after a sufficiently long period, say 1 year, I think one can argue that situations have changed,

When you are buying a fnma or a hud reo, during the first look period, as owner occupant, you may have to sign an occupancy affidavit. I am not sure what the ramifications are if you turn it around and make it a rental.
0 votes Thank Flag Link Thu Jun 14, 2012
It can be a good way to build a rental portfolio to buy a house, live in it for a few years and maybe fix it up and add value, then do it again and again. This is allows you to put less down and fix up the property and add value on your own time.
0 votes Thank Flag Link Wed Jun 13, 2012
Are you asking if you should buy a home and rent it out while paying rent somewhere else? Are you living rent free? I am unclear about your question. If you can elaborate more then you will receive more answers.
0 votes Thank Flag Link Wed Jun 13, 2012
Could you please give us more information.
0 votes Thank Flag Link Wed Jun 13, 2012
Think bigger picture with your rental property.
You can have both your personal space and a seperate rental side of your new home.
You dont have to be living with your tenants or just have a rental home that you dont live in.
Have other people paying your mortgage for your home.
But you dont have to own your own home first before you purchase a rental.
Good Luck.
0 votes Thank Flag Link Wed Jun 13, 2012
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