How to Buy a Home as a Primary Residence and Then Rent It

You can rent your house out after you've lived in it.

Purchasing property as a primary residence offers buyers breaks on higher interest rates and income tax penalties. However, there are rules that go along with making a property purchase with the intention to rent it out.

Mortgage Paperwork

When making a property purchase, some lenders require buyers to sign an affidavit at closing, which states that they will use the property as a primary residence and live in it for a minimum of one year. This is also known as the owner occupancy clause. Violating this clause allows the lender to call the entire amount of mortgage due, and could result in a foreclosure.

Cash Purchase

When making a cash purchase of a property, the buyer owns it free and clear. Once the buyer has closed on the property it may be rented at any time, unless there are community provisions that prohibit or limit rentals.

Warning

Income tax benefits for a primary residence normally eclipse any potential advantage to owning rental property. In addition to this, homeowners attempting to resell a rented property will have to pay capital gains tax on their proceeds if they have not lived in the property for two out of the previous five years before selling.

References

• HeraldNet: Check time rules to avoid capital gains tax on home sale
• SmartMoney: Should You Rent Out Your House or Sell it?
• MSN Real Estate: How to rent out your house