Owner Occupied Rental

Im so glad to have discovered this message board. What a wealth of information. I hope to contribute myself one day.

Hoping to get some advice…

My wife and I currently rent, but are trying to purchase a home that we want to turn into a rental as soon as we can (I think 12 months is min. time legally for owner occupied rental). We have a decent amount of money in our retirement accounts, a little in savings, and would like to diversify our portfolios with real estate. We have ZERO tax write offs. We pay the most taxes possible at our income level; its kinda sad and uncreative.

My question: At the time of closing, can we “quit claim” our property into an LLC right away? We intend to live in the property while personally re doing a bathroom, maybe a kitchen, paint, etc. Are we able to use these upgrade expenses a business write off because of the LLC? Our intent is to rent it ASAP and move on to repeat. Im lost on the best way to do this.

We thought about buying a rental straight away, but don’t have the 20-25% down required and we really want to get out of our tiny apartment. I have 14 straight days off per month do to anything I want. I know how to work on houses, have a boatload of time off, have been a landlord in the past, and pay some serious taxes. Help please!


Because you will owner occupy the property for at least 12 months you will only be able to take owner occupied tax deductions until you convert it to a rental, at which time placing it in an LLC is possible.

I would not place the property in an LLC until you decide your moving out and making it a rental!

A FHA 3.5% loan is great, move in within 60 days of closing and stay there 12 plus months.

Good luck,


What if the property is a duplex, or has a “mother in law” type space to rent out? Can you put it into an LLC and use the upgrades as a business expense while also living in it?


Because I have no idea what state your in I would really pose these questions to an accountant in your state.

I think anything you purchase as owner occupied will account under your personal return for that minimum one year!

It is much like me renting out my two guest houses for income, it is still my primary residence!


You should check with your lender. You may not be able to ‘quit claim’ the property into an LLC. Most lenders require you to remain on title. If the title changes, you risk being asked to pay the balance in full or switch it back into your name.

What reason would you want to have the home put into an LLC? You can consider increasing your insurance to have an umbrella policy for any additional liabilities.

I was thinking for the improvements to be a tax write off it had to be in an LLC and be a “business expense”. After doing research I no longer think this is correct.

Government loans underwritten to FHA and VA standards require owner occupancy. No second homes, no vacation homes and no rental homes. Government loans offer programs with little to nothing down, increasing the risk of default. Government loans help to offset the risk associated with little equity with an occupancy requirement. Default rates for owner occupied properties are much lower than those for investment purposes.

You do not need to have an investment property in a LLC to deduct expenses. LLCs are generally set up to reduce personal liability in case of a lawsuit. If you have sufficient property insurance coverage, this should not be an issue. If you own an investment property, you can deduct maintenance expenses on your tax return - which is not true for your personal residence.

If you plan to fix and flip it into an investment property, I would recommend that you initially setup the bank loan as an investment property. Though the interest rate is a little higher, you will not run into fraud charges (i.e. owner occupied but not) or difficulties trying to get another loan for your personal residence.

There are times when a home financed with a government loan is a rental property. This is when the owner obtains a government loan for an owner occupied property then decides to buy another home, move into it and rent out the existing home.

Though this does happen, I believe it is called “fraud.” Your loan documents state that this is to be a owner occupied property. If the lender finds out that the property is being rented and you are claiming residency on another property (even getting a second owner occupied loan) then at the least they could demand payment in full. In the worst case, you could be taken to court.

If you are planning on only staying a short time in a property, then it maybe wiser to finance it as an investment property rather than refinance only a few years down the road when interest rates will be higher.

The loan papers I’ve signed for my personal residences in the past have all stated that I intended on living there as my primary residence for a period of at least one year. There are people who get owner occupied financing and then move after the requisite time was spent there.

I’ve also lost a potential rental to someone who claimed they were going to be the owner occupant just so they could bid on a HUD house during the “owner occupants only” period and beat out other investors. People like that are definitely committing fraud and that’s a whole other beast as you described Simon.