Rental Property Investor · Union city, NJ · Member since 2016 · 203 posts · 43 votes
Might be a basic question, but havent been able to figure it out. Lets say you make 100k in a W2 job, and have a few properties as additional rental income. How does one plan out how to calculate how much they will be able to get financing for w just the rental income?
- You can either collect rent in your name or in LLC, and the mortgage takes (75% of rent income?) in consideration adding it to your W2 income, to qualify you for mortgage?
- If W2 disappears, how long does it take for rent income to substitute it, lets say its also 100k after a few months/years?
- Is it better to have rental income come through an LCC (pass through taxation), or personal name? For mortgage purposes.
I assume personal name as its easier to get bank financing for personal name.
Once the rental income profits/losses show up on your taxes for 2 years, they are calculated by using that figure reported. They average the 2 years to get a monthly amount of income (or debt). The lender can add some things back in like depreciation and car expenses related to the property.
The lender no longer needs to apply a 75% calculation to properties that are reported on tax returns for at least 2 years.
When you ADD a property, the lender will take 75% of the market rent (or lease if there is one in place), and count that against the PITI and HOA to come up with a cash flow figure to use for income (or debt). They will use this until it shows up on your taxes.
In order for you to eliminate the 100K W-2 income to obtain loans solely on the rental property income, the rental property profit/loss figure you report on your taxes would need to be enough to cover the new loan amount under the loan guidelines for income to debt ratios.
Hoepfully that makes sense. I know it can be kind of confusing.