Alright all my BiggerPockets fam, This ones a big one. Ive been a realtor for almost a year and a half now and will be parting ways with my w2 very soon. I’m wanting to know for investing purposes. Most lenders want to see w2 income and I’ve spoken to my CPA about it and have come to somewhat of a solution. But i would like some insight from realtors around the country and they’re take on it.
I have a separate account for my RE business and an LLC as well to establish a history.
What’s next and how can i set myself up for success?
S-corp through your LLC. You save on taxes and still qualify for properties.
Have your license for more than 2 years, show 1 year tax returns for a Freddie Mac loan. Borrowing power is based on that income. (Self employed income, not W2)
@Patrick J. thanks I have it set up that way. just wanted to make sure I was on the same page!
@Russell Brazil Awesome, I figured I needed at least a year of tax returns. I would be at a little over 2 years with my license at the time I would be applying so that's good to know. Thank you
Hi Josue-congrats on taking the plunge!!
Not sure what your investing niche is, but my recommendation would be to focus on multi-family commercial properties. The loan process is WAY easier.
(For reference: I am CEO of my own company so technically self-employed. As @Patrick mentioned, it's LLC as an S Corp).
In the past year, my wife and I bought a 6 unit and a personal residence.
On the 6 unit:
The bank asked to see the P&L of the property to ensure it cash flowed, appraised the property, and asked if we had enough cash for the down payment.
That was it. All in, it took me an hour to compile all the documents and talk on the phone with the lender. Super easy.
On the personal residence
This lender is 'flipping' the loan and selling it back. They were extremely worried that I didn't have a w2 income. Super candidly, my business is very profitable and my wife has a stable W2 job, but the bank was still skittish. They ended up asking for:
- Tax returns for last 3 years
- Monthly bank statements for last 2 years (24 statements)
- Monthly receipt of rent paid for the last 3 years (36 receipts)
- Statements from all stock investment accounts
- Leases for all tenants (at the multi-family properties...which is CRAZY because the multi-lender didn't even ask for these)
- The naming rights to our second child (not seriously...but in line with their asks)
Hope this example helps. One took me an hour to do, one took me weeks and literally had 100's of documents needed because it wasn't straight W2 income.
If you are thinking about different investment strategies, I highly recommend commercial for this reason!
@Sean O'Dowd wow, yea it looks like for commercial it’s very cut dry. Thank you for sharing I’ll definitely be looking into that!
I was in your shoes not too long ago. I worked in the tech industry and built my real estate business in parallel.
Get 10 financed properties before you quit your w2 job. :) Once you have 2 years tax returns worth of solid real estate income, you can use that to qualify. But if you have 2 jobs, you can have both incomes to qualify.
@Josue Molinari perhaps before you cut ties permanently get your first place purchased. Go into the game with a property... then keep excellent records and your bookkeeping up to date. Stick with one lender that excels in the type of investment you are doing. For example: I am a flipper. I have a relationship with a local, community bank. I keep money in their bank. I use them for construction loans and short term financing on my flips. I have a developed track record. They know my face. You already know as a Realtor that relationships matter. It matters in investing as well.