Refi Duplex Complication

[Andrew Stahl]

A friend of mine has somewhat of an interesting situation.  They got a special loan from a state economic development body that outlines a loan for owner occupied duplexes.  He got this special loan with a fixed rate and low closing costs because the loan outlines that you have to be owner occupied and if you move out you will have to refi.  He has since gotten a job across the country and is renting both units out.  He said that he has talked with many different investing professionals and they all tell him to forget refinancing and just sit on the loan because they have little recourse if you are paying your mortgage.  Fine, but shouldn't he refi into a no owner occupied so he can depreciate the whole property and not just half?  He cashflows and I think that depreciating more of the building is better even though he will have to increase his interest rate by about 100 basis points.  Details:

PP: 240000

Annual rents: 27600

Assessed: 280000

Owes: 220000 @4% 30yr fixed

Built:1960

Owned for 3yrs.

Annual taxes: 5600