Converting first time home into rental

[Chad Hrapmann]

I'm purchasing a townhome in Louisiana to use as a Primary residence while I fix minor issues then convert it into a rental. I'm getting a conventional loan putting down 5-10%. My end goal is to buy another home in the near future (6 months to 1 year) to use as a primary residence for a few years and transfer this townhome to an LLC.

1. What is the best/right way to go about this? Buy the home in the LLC's name? If not, how hard is it to transfer homes into LLC, costs?

2.  What tax benefits/costs should I be aware of from trying to move fast?

3. Are there any legal loopholes that let me keep the first time buyer tax exemptions?

I've researched some of these things but haven't found much on my unique situation, buying primary home with investment property in mind shortly after.  Any advice or help would be appreciated.

[Robert Leonard]

Welcome to BP @Chad Hrapmann!

1st off, if it were a conventional loan, you would be putting down 20%, but with a loan program, FHA, HUD, etc. backed loan, you can buy with 5-10% down payment. Those programs require you to live in the property for a year as your primary residence. You can use it for your purpose as long as you live there a year before you move out and use the property as a rental.

1. Use the loan programs in accordance with their rules first.  Get advice from your legal and tax counsel on the best entity (if you need one) to hold title to the property in.  It's not hard at all to transfer title to a property, ask your legal counsel how due on sale clauses work.

2.  See your tax adviser.  Income and assets of each individual drive tax related decisions.

3.  I think you are referring to LA's homestead exemption?  If so, it only applies to the first $75k of value of your primary residence and there's no loophole to use it on a rental property or more than one property.