Tax Return Came Back- Great Return,Terrible News on Loan Approval

[Nate Tew]

Hello all, 

Story: I am seeking some advise on a personal challenge I have just run into with getting approved for a loan for a primary residence. We own 2 investments properties and they are in our LLC that was formed last year. We transferred our former primary residence in the LLC and made a rental last year and then we purchased a town home as an investment the end of 2021. With all of the money going into purchase, interest, repairs, depreciation etc. we were able to write off a lot for taxes. We came up with a total loss from the LLC of 62k for the year. We will be getting a decent personal tax return from our K1 ownership in the LLC.

Problem: Now, as we have submitted everything with a loan officer for us to get approved for a load to purchase a primary residence we dont qualify. The 62k that was a loss on our taxes is counted against us completely as a loan qualification. Example, if I make 65k from W2 a year - 62 of loss for 2021, the lender can only use 3k of income to qualify. The lender says that they use 2 years average for rental income, and its the same for the LLC. So even if we don't show a loss and break even this year (2022), then come this time next year getting approved for a loan we are already 31k knocked off of our qualifying income for a loan.

Solutions????? I need some! : I have a private money loan option that would require me to pay the full loan back a  year from purchase, but I am afraid with this situation I wont even be able to get approved for a conventional loan this time next year as well. 

Any experience with this? How to approach it??

I have tuned in to so much of the bigger pockets materials from books to podcasts and meetups and I am very grateful for this platform. Somehow I have never heard of this issue or challenge yet so I completely got blindsided with it. Any advice or experience is much appreciated!

[Ashley Cross]

This is a problem with a lot of real estate investors. With conventional financing, all the tax benefits you receive becomes a punishment. I've turned to DSCR loans and now with conventional rates being so high it's not much of a difference. You will have to pay more in fees but it gets the deal done. Just make sure you speak to a great lender where you intend to invest. I'm a lender in Columbus, Ohio and I also invest in Delaware. I've seen a lot of success with DSCR loans personally and professionally.