Converting Primary Residence into My First Rental Property!

[James Mason]

First posting!

I am about to convert my primary residence into a rental property (I had lived there for three years, so no issues there). I have been reading articles all day, and I am having trouble figuring out the best way to proceed. Here's what I think I have learned to be true: 

*I must call my homeowners insurance and convert my policy to a landlord policy. Not doing so would be very stupid and dangerous. However, landlord insurance tends to be a bit higher, potentially cutting into the cash flow.

*Since I have occupied the house for more than 2 years, the conventional mortgage loan that is in place is fine as is.

*There may be some significant tax benefits for me. I should find a CPA with expertise in rental properties.

Are all of these things correct?

If so, the real question I have is how should I proceed?

My mind is swirling with the possibilities. Perhaps I should refinance the home (my current interest rate is at 3.9%)...perhaps this would mitigate cash flow losses due to higher "landlord" insurance. I plan to hold on to this property for at least 5-10 years.

What would the order of events be and does that matter? Change insurance first, then look at possible re-fi, etc.? Is it too early to consider creating an LLC?

One thing that I think a lot of folks might relate to is this question: Is this something I should handle myself, or should I consult with an expert? In other words, should I just call my insurance and change it to a landlord policy? Should I shop rates? If I wanted help in this situation, who would I hire or consult to optimize the process? 

Big thanks in advance for any thoughts you have to share.

[Frank Chin]

@Adithya Y.

If OP refinance now to a 3.9% mortgage, still lives there, found an investment property, then moves out in less than a year, rent out his old home, then he'll be in trouble if he got an OO mortgage.

I ran into this problem in 1993 when I refinanced all my mortgages including the home I lived in as mortgage rates fell from 13% plus in the mid 80's to 7.5% by the mid 90's. It's the bottom of the crash with foreclosures everywhere and I bought one, $100K below market at auction. One property I got was so much newer and roomier than the one I lived in and I thought of moving there. Problem? I just refinanced and the OO mortgage required me to live there for 2 years under the new mortgage. The fact I live there for the last ten years under the old mortgage doesn't count.

Took me a few months to fix up the new place, thought of renting it out and then move in two years. Finally, took a chance, kept everything under the radar, kept my mail going to the old address for a while, and waited things out nervous any day I'll be found out. Don't want to do that again if I can help it.

OP should keep these issues in mind, timing of refinancing, acquisition of new properties to stay out of trouble.