Refinance before converting residence to a rental property?

[Jim Kohlman]

I currently live in a condo that has a loan balance of approximately $46,000 with a value of approximately $80,000 (realistic current market value). The loan is a 7/1 ARM at 5.125% which I got in 2004, so it will adjust in 2011. I am looking to buy another principle residence in the next few months, and am thinking of converting my condo into a rental property. The monthly cash flow on the property would be about $200 per month.

• Should I refinance the condo as my current primary residence before I do anything else?


• Will I have any issues with the Mortgage Company if I end up converting the property into a rental property a few months after I refinanced it as a primary residence?


• Should I try to pull some equity out of the property if possible?


• Should I position myself to try and sell the condo it in the next 3 years, so I can walk away with the equity tax free? (The two of the last five years rule for capital gains exclusion).

Any comments or suggestions would be greatly appreciated!
Thanks,
Jim K