All Forum Posts by: Kiah McBride

Why aren't you asking these questions to your CPA?

Technically, the IRS have a designation of 'LTR' or 'STR'

They just care that you are properly classifying whether the property is passive or active.
They also want to make sure that you are properly depreciating the property as residential real estate is depreciated over 27.5 years and other properties depreciated over 39 years. 

Depending on the average stay of your guests, your property may need to be depreciated over 39 years.

Have always found it's best to get your LLC attorney and CPA together to hash all this out, otherwise they always seem to give conflicting info.

Disclaimer: I am an attorney, but I am not your attorney. This is not legal advice, just friendly information.

Most rental income is considered passive unless the average stay is less than 7 days (there are other things you can do to make it active though). Definitely talk to a CPA about how that works for you. 

Having said that, it is best practice to try to separate passive and active income streams. While it can technically be done under one LLC, it means very careful accounting practices so it's reported right. And with a renter in for 6 months, it sounds like you have probably had both active and passive income flowing through the same LLC for some time now.

The bigger question is what you mean by funneling costs and income through the LLC. The purpose of the LLC is to provide asset protection, but that only works if the LLC owns the property. Otherwise, it sounds like the LLC may be acting as a property manager, which changes everything.

Agreed with other’s comments. At the end of the day, it cones down to your personal financial position. You may need to “explain” things to an underwriter, make sure you are in compliance with the owner occupancy requirements on existing financing, or so something else but as long as you have a strong financial position you’ll find a lender. It may be non conventional or hard money on the initial purchase. You refi out of it once things are stabilized. From a long term perspective, it’ll probably make sense. If are looking at short term, flip, or something else, the market may or may not be where you want it to be in 6 months 

Also, most lenders will want you to meet "reserve" requirements (ie money to service both mortgages current and new one) for about 6 months. Not all of them tell that upfront but you will be hit with that requirement about 2 weeks into your loan application when it finally gets reviewed by the underwriters. Also, if I was you I would finalize lender and attempt getting rate lock coz come 20-21 Sep there is a super high probability that FED will increase rates by another 0.75% which will increase your mortgage rate as well.

Standard conventional note indicates you will occupy as primary for 1 year. Whether anything comes from that if you depart earlier probably unlikely, but to do so without approval from loan servicer is still a violation of contractual agreement.

Buying up could also be a reason to purchase another primary residence.

Having a Non QM lender for primary residence might be an option since they can be more flexible on how you document your income or potential rental income. Depending on credit you can get a loan to 90% LTV.

Love the idea of converting the gargage. I've done a couple of those and they are great. 

Sounds like you need to crunch some numbers and decide if one year of long term renting it and being able to purchase another house hack gets you closer to your goals than STR your current property and waiting to buy the next one.

Could you qualify by getting a six month lease for LTR? You could use that lease, qualify for another house and then turn the house you left back into a STR.

The easiest to essentially wipe the slate clean may be to just sell your current residence. I realize that may not directly advance you towards your goal, but it would recapitalize you, eliminate the OO concern and allow you to extract whatever value the ADU may have added.