Avoiding 20% Down on Second Home

[Aaron Taulbee]

Couldn't find a thread that addressed this very clearly:

Currently live in my Primary Residence in suburb of Atlanta, GA. I'm interested in buying a lake property in N GA Mountains. In order to not put 20% down and keep more cash for rental down payments/repairs, is the possible scenario possible and above the board?

Buy Lakehouse with 3-5% down as it is intended to by Primary Residence. Switch licenses, billing addresses, etc to new Lakehouse Address while changing insurance on primary residence to make it a "second home".

In addition to saving on down payment percentage: It seems like if I "lived" in Lake House for 2 years, and moved back to current house for additional years before selling, I could sell either without paying taxes on gains.

What am I missing? How does the IRS officially determine where you live percentage wise when you have two homes within close proximity to each other? Before I consult a local Attorney/CPA, what are the legal and tax concerns with this type of planning?

Any help is greatly appreciated.

[Joel Owens]

This is definitely a question for your tax advisor. There are many grey areas in the tax code and people take risks everyday to challenge the grey areas.

Some win and some lose. If you disagree with an IRS ruling with your case on a grey area then you might have to fight it out in court.

Another issue is loan fraud.If you state getting a loan that you plan to occupy the property and sign documents at closing and the lender feels you violated this agreement they can come after you.The whole point of the 20% down for investment is research shows that when times are hard the owner will dump the investment property first and protect the primary where they live.

Lenders know this and with 20% down even with foreclosure they can recover most of their money.When you live there versus a renter in many cases you will keep up the property better.

You also mentioned a license.Are you talking a real estate license or a drivers license??

If a real estate license and you are a REALTOR then not only do you have to see what is lawful but also what is ethical as well.Many activities are not unlawful but can be seen as unethical. No legal advice