Second Home - Occupy Upstairs

[Petra S Jordan]

Hello, I want to ask those of you smart people if you think I have a good plan and help me find the pitfalls.

I live in Utah County. We have a home in Highland and it's worth about $700k (owe $200k). I run a t-shirt business and also rent out a warehouse in PG for $1200k per month. 

I'm getting tired of my PG warehouse. There's a lot of creepy humans that hang around there and I work in it alone as a female and don't feel safe. Also, that $1,200k makes up a good chunk of my expenses and I'm not getting equity from it.

So here's my plan. I will buy a second home that has some sort of rental area, either an outbuilding or a basement that I can rent out to help cover expenses and run the business out of the remainder of the home. I'll need at least 1500 square feet to keep inventory. I've been looking on the market and see a bunch that pop up that will fit my needs. 

I've done the math and if I buy under $300k, and am able to rent out a basement at $1000k plus utilities, I will still be paying a little of the mortgage, but at least it will go toward an investment instead of my warehouse owner.

I guess I wonder if it's legal to not occupy the home, but rent out part of it and run a business out of another part. No customers will visit the premises. I won't be sleeping in the house either. I also won't be selling my house. 

I was thinking of opening up a separate LLC and rent that floor space to my business' LLC so I can claim it on taxes. BUT--I think I heard you can't do that because it would be an illegal duplex because TWO entities would occupy the house.

Anyone know? Does the plan sound ok? As long as I am smart about my renters, locking up inventory, etc? Any pitfalls you can think of?

Petra

[Kaydn Jensen]

Hey @Petra S Jordan

As for the question of legality, I can tell you that in order to rent out out a mother in-law apartment or accessory apartment you are required to owner occupy the home. That leads me to think that if you are renting a level out to your business's LLC and renting out the other level to tenants you could run into an issue since technically you aren't living there. At the same time I think the likelihood that you will actually run into any trouble is very low. I know that there are multiple homes rented throughout Utah Valley that are zoned to have accessory apartments where both units are occupied by tenants. I don't think it's a bad option but you may want to consider running a worst case scenario analysis to see how it would effect you if you weren't able to use it for your business. Another thing to consider could be to purchase a multi unit commercial property and "business hack".