Turning a primary residence into an airbnb.

[Ethan Clay Lesperance]

I recently moved to a home i was going to flip but decided to keep and make it my primary. I have a conventional 30 year loan on the old house(lived there for 2+ years) and private loan on the new one for now. Anyway, im planning to turn the old one into a 5 bed 2 bath airbnb. Is this ok to do while having a conventional loan? Is insurance going to be a problem? Do i need to inform the lender and my insurance of my intentions? 

[Ty Coutts]

Hello Ethan,

Turning your old home into a 5-bed, 2-bath Airbnb while having a conventional loan is generally permissible, but there are important considerations. First, you should inform your lender, as converting the property into a short-term rental can affect the terms of your mortgage and may require a change to an investment property loan. Additionally, you must notify your insurance company to adjust your policy to cover short-term rentals, ensuring you have appropriate coverage for liability and property damage specific to Airbnb operations. Failure to inform your lender and insurance could lead to complications, including potential policy voiding or loan default. Properly addressing these aspects will help you avoid any legal or financial issues. Please let me know if this doesn't make sense or you have any other questions. Good luck!

[John Underwood]

Not everyone offers STR insurance. You may find your current insurance company doesn't and you'll just need to shop around to find someone that does.

You absolutely have to have the correct insurance or you may not be properly covered.

[Andrew Steffens]

Yes, I think you would be fine with your lender, many people move out of a primary and turn into a rental.  Definitely would contact them to make sure there are no clauses against it.

The insurance is definitely the bigger hurdle. You should contact your current company to see if they can insure it as a STR, if not you will need to find a new carrier.

[Michael Baum]

Hey @Ethan Clay Lesperance, technically the lender could call the loan due for violating a possible clause in the loan agreement.

I have been someone who has warned about this but so far, many folks have renting their former primary residences without issue with the lender. As long as the payments are made on time, they don't seem to care.

I echo @John Underwood that having the correct insurance is of top importance. As long as it meets all the standard kinds of coverage, the lender shouldn't care either way.

STR insurance usually FAR exceeds any kind of coverage that homeowners provides.

Proper, CBIZ and Foremost are STR insurance providers. A lot of other insurers are providing STR insurance these days so shop around.

I would get a quote from Proper as they are usually the most comprehensive but the most expensive. Use that as a base to check others for what their coverage offers.

[Alex Gurvitz]

If you inform your conventional lender that you are turning your primary into an Airbnb, they will most likely put your mortgage into technical default. 

[Ethan Clay Lesperance]

Quote from @Alex Gurvitz:

If you inform your conventional lender that you are turning your primary into an Airbnb, they will most likely put your mortgage into technical default. 

Are there loans that are geared more towards what I'm trying to do? I have a fair amount of equity in the home I'd be more than happy to pull out and utilize!

[Ethan Clay Lesperance]

Ok so I called the lender(loan depot) and the insurance company(USAA) and I'm good to go as far as turning the "old" primary into a STR. I also called the lender that did my.last DSCR loan and asked some questions. I know that I've already go about 50k in equity in the property but the last appraisal was before 18 new windows @ 20k were installed. I'm also in the process of getting a new roof put on. It has a brand new HVAC system, updated 200amp electrical panel and all new wiring throughout. I'm also going to add some outdoor(deck) space and update the kitchen with new cabinets and countertops(modernize) as well as take out the carpet and put down lvp flooring. All of these things will certainly increase the value of the property which means a jump in the equity I can utilize. The catch is, my current interest rate on the conventional is 2.87% and I'm positive it will nearly triple if I refinance with a DSCR so it's a tough decision. Keep the 2.87% or take all the equity out I can and let the property work to make up for the increase in interest. Thoughts??

[Alex Gurvitz]

Yes there are. Feel free to give me a call, and I am happy to go over a few different loan options with you

[Sarah Kensinger]

I've never heard of anyone telling their lender a property it's changing to a STR, after living there for a couple of years. From my understanding you can get a conventional loan for a STR, but you must live in the property for at least 6 months before changing it over.

Insurance on the other hand is a big deal! If the homeowner does not have the correct policy even a tree falling on the home is not covered. Proper insurance is the best option, but there's also Erie and Steadily. Just make sure you read over the policy on the last two options and make sure short-term rentals are not excluded. I've heard of that happening with those companies.

[Ethan Clay Lesperance]

Depends on the terms of your loan...in my case I had to live there as my primary for ar least 12 months...I met the requirement so I'm now free to use the property as I wish. I also spoke with my insurance provider and they assured me they cover STR...in addition I have an umbrella policy. I am required to inform the lender of the insurance policy changes to ensure it meets the requirements on their end.