Insurance rental versus second home

[Martin Nesta]

Hello,

I purchased a property as a second home and now because and I had the opportunity to rent it for one year a month ago. I was talking to my insurance agent and she mentioned that the insurance is for second home does not cover for rental and he should write the policy again. In case I have a claim the insurance may not pay since the policy was not written as a rental. She was also saying this may trigger a problem with the mortgage company since the loan was for second home and not investment property. Anybody can comment advice on this assuming this is not a rare problem.

Ty

Martin

[Joe Splitrock]

@Martin Nesta second home loans offer discounted interest rates, lower down payments and no reserve requirements, because you are occupying the property part of the year. You agree to this as a term of the loan. Prior to converting a second home to a full time investment property, you should contact your mortgage lender and verify it is allowable. Mortgage lenders are aware of people using second home loans to buy investment properties and this is considered fraud. There may be a way to convert or meet terms, but it is better to ask permission than get caught. I would definitely change the insurance, so you don't leave opportunity for the insurance company to deny the claim.

How long have you owned the property?

Also be aware of tax ramifications. You will need to work with a tax professional to setup basis for depreciation and teach you how to track expenses and income. 

Be careful, because ignorance of the law is not a defense for breaking it. Before going into business, you need to learn the laws and rules.