Can buying house for business constitute a write-off?

Find out what lenders have to say
By: Ilyce R. Glink: Inman News
Q: How should I get a loan to purchase a residential piece of property? The house is located next to my house. I wouldn't buy it to flip it and resell. Instead, I would like to purchase the house to use as my office. In essence, the whole property would be an investment.

I am hoping that I could use cash from the business I start to pay the mortgage, and use it as a write-off. Should I get a business loan? Is there another way to do this? What do you suggest?

A: There are mortgage lenders who will help you finance the property for your business. It will cost more, and you won't be able to get 100 percent financing. In fact, you may be limited to 75 percent if you choose to finance the property as investment real estate.

If you get a loan of up to 75 percent of the purchase price, you can either take out a home equity loan on your current property and use that as the down payment, or see if the seller will carry back the second note.

If you use a commercial mortgage lender, you need to know that you'll pay a higher interest rate and more in points and fees. That's why so many people try to use a residential mortgage lender to buy a second home-even if it is ultimately for investment or commercial use.

Since the property is located next door to your current residence, and since you plan to use the house as your office, it's possible to find a residential lender to give you the loan to purchase the house. The rate may be a little higher, but may be quite a bit less than with a commercial lender. Talk to several mortgage lenders to make sure that you qualify for a residential loan.

One thing to check-some communities frown on homeowners who operate businesses from residential neighborhoods. You should check to make sure that your neighborhood or community does not have such restrictions. You may also need a business license for your entrepreneurial endeavor.

Q: I live in a community that is very expensive. The rent I pay is cheap, but it costs too much to buy a home here, near where I work.

However, I have saved up enough cash for a 5 percent down payment on a property that is in another state. I would use this property as an investment and try to rent it out.

Since I don't live near where the property would be located, I am wondering if I should hire a management company to take care of everything for me.

A: While I don't know if you live in Manhattan, but many New York City dwellers (and those in other expensive metropolitan areas) are doing what you're considering-renting a primary residence and purchasing a second or investment home elsewhere.

Since this isn't going to be a vacation home for you-where you might want to take advantage of mountain, lake, or simply wide-open view-you need to spend some time working out the details of your investment property purchase.

I do wonder why you'd want to buy an investment property so far from where you live. Isn't there anything you can afford that is more easily accessible? While you can hire a management company, it's a far better idea to buy in a place where you visit frequently, so you can keep an eye on your investment.

A management company may take a sizeable portion of the rent you receive to manage and, perhaps, rent the property for you. And, you'll still have to check up on the management company to be sure that all monies are accounted for.

If you decide to go this route, please interview several companies thoroughly before handing over the keys to the house.

Here's another way to do it: If you buy an apartment building that either has a "caretaker's cottage" or "engineer's apartment" consider renting out one of the units to someone who is particularly handy and trustworthy to take care of the property and keep an eye on it for you. You can trade some or all of the rent cost for the physical management of the property.

I wouldn't have that person collect rent, but those can be sent to you or your bank directly, or you can arrange an electronic transfer into your business account.

If your plan to buy a property is in a vacation community, you may want to look for a condominium or vacation home that is in a large development.

Frequently, these large developments take care of the exterior maintenance of the buildings and offer rental property management and services. You can take advantage of the rental office, place your property with them and allow them to rent it for you. But be prepared to pay as much as half of the rent you receive for these services.

Finally, if your choice is to buy a single-family home in a different city, make sure you have friends or relatives near buy to keep an eye on the property for you.

While you'll still need to check on the property from time-to-time, this should help.