1099 won't qualify me for an apartment

Multi-Family and Apartment Investing
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1099 won't qualify me for an apartment

Dan Stewart
Beulah, MI · Member since 2016 · 41 posts · 7 votes

Hey Guys,

So I have been working for myself and other the past 10 years. I make 95% of my money during the summer. I am either 1099 by people or get paid cash under the table which I put towards my business. I also have been investing in stocks since my dad bought me my first stock at 1 years old. I can't remember the last time I received a w2. I have been living with my parents and friends ever since I got out of college. I have a charter fishing job on Lake St. Clair in Michigan that takes 7 months and I need to move closer to the lake because I am currently 1 hour and 10 minutes away. After running doubles and triples last summer, the last thing I want to do is make that drive again. 

I have started looking at 12 month leases apartments but everyone wants w2s which I don't have. When I tell them I make most my money throughout the summer they won't buy it. I could buy a house right now with cash. However, I plan on moving in the next few years up north and don't feel it would be a great investment right now with the market so high. I also want to buy a vacation rental home with the cash I have saved. I could get another job but I still wouldn't make the required amount of money apartments need. 

What do people do who own their own businesses to get apartments? 

Thanks for any advice!

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Aaron Treloar
Vendor · Kalamazoo, MI · Member since 2016 · 93 posts · 56 votes
9y

Use your tax returns instead of just the 1099.  This is how I income-qualify people in your situation.

6Reply
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  • Anastasia Jordan
    Investor · Birmingham, AL · Member since 2016 · 446 posts · 305 votes
    9y

    Buy checkstub paper from OfficeDepot + the software and just make up a job & print it out.

    0Reply
  • Anthony GaydenPro Member
    Rental Property Investor · Omaha, NE · Member since 2014 · 2k+ posts · 3k+ votes
    9y

    @Dan Stewart

    My suggestion is to look for an apartment to rent from a smaller landlord who owns/self manages. Often they are much more understanding of difficult circumstances, and often they screen much less thoroughly. 

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    0Reply
  • Aaron Treloar
    Vendor · Kalamazoo, MI · Member since 2016 · 93 posts · 56 votes
    9y

    Use your tax returns instead of just the 1099.  This is how I income-qualify people in your situation.

    6Reply
  • Brandon Battle
    Real Estate Agent · Buena Park, CA · Member since 2016 · 743 posts · 424 votes
    9y
    Dan Stewart,you should offer to show them your last two tax returns which shows your exact income every year( Summer only or not).That is how self employed people verify their income for loans and such.
    2Reply
  • David D Painter
    Member since 2016 · 143 posts · 157 votes
    9y

    Tax returns as others have pointed out or sometimes proof of reserves (cash) along with a decent credit score. Good luck!

    0Reply
  • William Hochstedler
    Broker · Logan, UT · Member since 2013 · 1k+ posts · 1k+ votes
    9y

    You will also have this problem when you try to get a loan to buy.

    The work around is to set up a company where all your 1099's go and have the company pay you W2 income.  Most lenders will need to see a year or two of this type of income.  So you might want to consider doing this sooner than later.

    0Reply
  • Kurt Hines
    Investor · MI · Member since 2016 · 102 posts · 44 votes
    9y

    There are also major tax benefits to getting paid through a company as @William Hochstedler suggests. The basics are below for a S-Corp (I believe LLC with S election works the same way, but I don't have experience with that). I highly recommend talking to an accountant familiar with this, instead of doing it on your own. This does not mean an H&R block tax preparer, but an accountant or CPA that does business and personal returns. It sounds like you make enough income where the accountant will easily pay for him or herself.

    When you are getting paid 1099 income, on your tax return you are treated as a sole proprietor, and are paying SE tax of 15.3% on top of your normal tax rate. This also puts you at a higher audit risk. You will want to setup either an S-corp, or a LLC with a S election. The S is important, as it changes your tax profile.

    Now, all your 1099 income gets paid to your company. It flows from your company to you in 3 different ways

    1. Paying for expenses directly from company funds, and expense reimbursement of items you paid for personally. This is not taxed at all, since it is deducted dollar for dollar from your Gross Revenue (1099 income.) (You have to be careful here about co-mingling personal and business accounts, but an accountant can walk you through it.)

    2. Profit that flows to you on a Schedule K-1. This is taxed at your normal rate, with no SE tax.

    3. A reasonable income that your company pays you. You pay your normal income tax on this, plus the equivalent of SE Tax. Reasonable is defined based on the variety of positions you do, and an accountant can figure out.

    Your tax return will now show 2 income streams, W-2 Income from your corporation, and profit from your corporation.  I successfully used this strategy in the past to get mortgages, and they counted both my W-2 income, and my profit.

    This doesn't help you right now with renting an apartment, but it will help you in the future, and will help you save money each year to go towards that up north house. 

    Good Luck.

    3Reply
  • Bryan O.
    Specialist · Lakewood, CO · Member since 2014 · 1k+ posts · 1k+ votes
    9y

    +1 for @Kurt Hines

    -10 for @Anastasia Jordan

    Because you have been taking cash under the table and then not reporting to the IRS (based on information in your post), you don't qualify for much. Fix the fraudulent activity to become qualified. It will take a couple of years to do, but it is the right way forward.

    Try see if landlords would allow you a method to escrow the funds for the lease duration. That ensures their payments, but it also incurs a bigger headache for them. Be prepared to pay extra. Most property management companies are quite familiar with escrow accounts where mom and pop may not even want to touch it. Have you considered buying a house with cash, renting the rooms out while you live there, then selling when you move? You said you don't want to hold long term, but if you get decent rent from roommates you can sell it when you move and you saved yourself a ton of rent during that time.

    Best of luck!

    1Reply
  • Dave Charron
    Real Estate Investor · Cicero, NY · Member since 2010 · 25 posts · 1 vote
    9y

    if you have plenty of cash to buy a house then just pay for the whole 12 months upfront.  problem solved

    0Reply
  • Christian Hutchinson
    Investor · Detroit, MI · Member since 2014 · 360 posts · 354 votes
    9y

    Any landlord should know that a 1099 employee should be like deduct 40%-60%. These people never dealt with a hairdresser, or nail-tech?

    0Reply
  • Account Closed
    Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes
    9y

    If you have income and pay taxes then tax returns should provide proof of ongoing self employment income. If you are cheating on taxes then this is one of the consequences. @Anastasia Jordan maybe some landlords are that stupid but most will verify employment. Hope you never apply for one of my properties!

    0Reply
  • Natalie KolodijBusiness Member
    Moderator
    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    9y

    @Anastasia Jordan What a wildly unethical thing to suggest. 

    Also @Dan Stewart You should be reporting and paying taxes on ALL your income, cash or not. Also, tax evasion- not something I'd confess to on the internet. 

    Ya'll need a come to Jesus meeting. 

    Also Yes, any self employed person proves income with a tax return. No one ever requests a 1099. If you return showing NET income ...divided by 12 covers their monthly rental requirement (example 3x the rent) they should accept it

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    2Reply
  • Marc C.
    Buy-and-Hold Rental Investor · Santa Fe, NM · Member since 2015 · 438 posts · 352 votes
    9y

    Why are we discussing this in an apartment INVESTING group? The OP was about qualifying for a rental; we have another forum for renter issues. 

    0Reply
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