Leasing a new car (Conventional DTI Concerns)

Private Lending & Conventional Mortgage Advice

Leasing a new car (Conventional DTI Concerns)

Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes

So I decided to sell my luxury car in order to free up more capital for real estate deals.

I couldn't justify having a lot of cash tied up in an expensive vehicle anymore knowing I could be investing that money.

I currently have no wheels so I obviously need to replace the car I just sold with something more economical ASAP.

Here's where I could use some input/advice particularly from you mortgage brokers and conventional lenders:

I'm self employed (10+ years) but my tax returns show low income due to business expenses and write offs.

Although my net income shows low on paper I have zero debt, Tier 1 credit and a healthy amount of cash on hand.

Technically my DTI is still okay (per Fannie/Freddie guidelines) since I have literally no debt of any kind reported.

With that being said I'm afraid if I go lease a new vehicle, even if it's something cheap, it may impact my DTI just enough to affect me being able to qualify for conventional Fannie/Freddie loans since there would be debt reported then.

Right now I'm actively looking for a conventional Fannie/Freddie lender to work with for acquisitions and cash out refinances. I'd hate to go lease a new car this week only to find out I can no longer qualify because of the lease.

Would it be wiser to buy something cash again (but cheap this time) to stay debt free and not take the chance of negatively impacting my DTI any further since my income already shows low as it is?

Thanks in advance and if you need further information and/or specific numbers please feel free to message me!

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Kyle J.

Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes

If your income is "low on paper", you have a "healthy amount of cash on hand", and your primarily concerned with your DTI and future borrowing ability, then there is no scenario where leasing a car would be better than buying one outright with cash.

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James W.
Minneapolis, MN · Member since 2017 · 353 posts · 223 votes
8y
Originally posted by @Cara Lonsdale:

Originally posted by @James W.:
Originally posted by @Cara Lonsdale:

I'm not sure when the last time any of you bought a used car was, but there is nothing decent that you can pick up for $2K-$3K. A car like that will spend alot of time in the mechanic's and/or won't be pretty inside or out. We are just getting ready to list my daughter's 1997 honda accord that she used all through high school and college. It runs, it has AC, but that is about all it has going for it. It is a hot mess to look at.
Going from a luxury vehicle to a broke college student status might be a little harder to do than you think. And it really has little to do with ego, but rather practicality.
I think you are onto something by looking at options where your business leases the car from you. I would say purchase a decent car for cash (15K), and set up a lease that you business pays you for use of the car. Not only will you solve your car problem, but you will create more income for yourself to apply toward your personal finances, which currently show low on paper.
Leasing a car to your business is legit, and can provide some great tax benefits. Run it by your CPA and see what they think. I think this is the best solution for what you are looking to achieve.
Best of luck to you!
I picked up a 2008 Honda Pilot with 180k miles in great shape for my wife for $2,980. The seller had it priced at half of the value and just needed to let it go. She really didn't know what it was worth but posted it on facebook and I was fortunately the first one to reply back. Even if the car only last a few years, it will be significantly cheaper than losing $3,000+ a year in depreciation. My work truck is a 2010 F150 fleet vehicle that I picked up with 190k on it for $3,500 a year and a half ago. I have not had to do any repairs for either vehicle but even if I do, it will likely be cheaper than a year of car payments. Deals on cars are out there just as much as deals on homes. You just need to look for them or know a deal when you see it. I have purchased new and luxury vehicles in the past. I can afford a nice vehicle, but don't care to spend money on depreciating assets at this time.
In regards to buying a car and having the business lease it, I am not sure how this constitutes additional income. It may raise questions as to why he is getting lease income from a business if he claims it as an income source when applying for a loan but I am not sure a lender will count it towards his DTI. With 1-4 family conforming loans, the net impact of the property based on the fannie/freddie calculation will be looked at as an increase to income or an increase in expenses on his DTI. It doesn't add XX to income and X to expenses the way consumer debt is calculated.
I am not a CPA, but my understanding is that If he has a pass through entity for his business, the income he claims will be offset by the expense he claims as part of his business. It will have a net effect of $0 when a lender is using his tax returns to review his income.
This is actually a common practice. If he purchases a car outright, and leases it to his business for the portion of the car use that the business represents, then his personal income will be increased on his taxes for DTI purposes (therefore extra income). The lease payment is a deduction for the business.
It depends on how his business is set up and taxed, whether it impacts his personal finances or not. A corporation, or LLC with it's own tax ID # is sole and separate from personal finances and does not pass through to personal income, so the two are completely separate. I read in the OP's post that he didn't make much on paper personally, so my assumption was that he was trying to purchase based on his own personal finances, and not a combination of the two. I could be wrong there.
Either way, it is just another option to consider.
If he goes that route, hopefully it can work for him. He may be able to trick a consumer or small lender, but if anyone does a global review of his financials to include his business, it will be a wash and won't help him.
I believe the entity type and structure will determine if it is pass through or not. I don't think the Tax ID has anything to do with it. I have a LLC with a Fed tax ID and it is a pass through entity with the financials being reported on my schedule E.
As I said before, if his goal is to free up his DTI in order to do conforming loans, buying the right deal and having the down payment might be better for him. If the place will cash flow well, it will be an increase to the income side of his DTI without changing his expense side since they look at the net impact of the property to see if it will give him income, or be a burden and add an expense to his DTI.
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Cara Lonsdale
Realtor and Investor · Scottsdale, AZ · Member since 2017 · 1k+ posts · 1k+ votes
8y
Originally posted by @James W.:

Originally posted by @Cara Lonsdale:
Originally posted by @James W.:

Originally posted by @Cara Lonsdale:
I'm not sure when the last time any of you bought a used car was, but there is nothing decent that you can pick up for $2K-$3K. A car like that will spend alot of time in the mechanic's and/or won't be pretty inside or out. We are just getting ready to list my daughter's 1997 honda accord that she used all through high school and college. It runs, it has AC, but that is about all it has going for it. It is a hot mess to look at.
Going from a luxury vehicle to a broke college student status might be a little harder to do than you think. And it really has little to do with ego, but rather practicality.
I think you are onto something by looking at options where your business leases the car from you. I would say purchase a decent car for cash (15K), and set up a lease that you business pays you for use of the car. Not only will you solve your car problem, but you will create more income for yourself to apply toward your personal finances, which currently show low on paper.
Leasing a car to your business is legit, and can provide some great tax benefits. Run it by your CPA and see what they think. I think this is the best solution for what you are looking to achieve.
Best of luck to you!
I picked up a 2008 Honda Pilot with 180k miles in great shape for my wife for $2,980. The seller had it priced at half of the value and just needed to let it go. She really didn't know what it was worth but posted it on facebook and I was fortunately the first one to reply back. Even if the car only last a few years, it will be significantly cheaper than losing $3,000+ a year in depreciation. My work truck is a 2010 F150 fleet vehicle that I picked up with 190k on it for $3,500 a year and a half ago. I have not had to do any repairs for either vehicle but even if I do, it will likely be cheaper than a year of car payments. Deals on cars are out there just as much as deals on homes. You just need to look for them or know a deal when you see it. I have purchased new and luxury vehicles in the past. I can afford a nice vehicle, but don't care to spend money on depreciating assets at this time.
In regards to buying a car and having the business lease it, I am not sure how this constitutes additional income. It may raise questions as to why he is getting lease income from a business if he claims it as an income source when applying for a loan but I am not sure a lender will count it towards his DTI. With 1-4 family conforming loans, the net impact of the property based on the fannie/freddie calculation will be looked at as an increase to income or an increase in expenses on his DTI. It doesn't add XX to income and X to expenses the way consumer debt is calculated.
I am not a CPA, but my understanding is that If he has a pass through entity for his business, the income he claims will be offset by the expense he claims as part of his business. It will have a net effect of $0 when a lender is using his tax returns to review his income.
This is actually a common practice. If he purchases a car outright, and leases it to his business for the portion of the car use that the business represents, then his personal income will be increased on his taxes for DTI purposes (therefore extra income). The lease payment is a deduction for the business.
It depends on how his business is set up and taxed, whether it impacts his personal finances or not. A corporation, or LLC with it's own tax ID # is sole and separate from personal finances and does not pass through to personal income, so the two are completely separate. I read in the OP's post that he didn't make much on paper personally, so my assumption was that he was trying to purchase based on his own personal finances, and not a combination of the two. I could be wrong there.
Either way, it is just another option to consider.
If he goes that route, hopefully it can work for him. He may be able to trick a consumer or small lender, but if anyone does a global review of his financials to include his business, it will be a wash and won't help him.
I believe the entity type and structure will determine if it is pass through or not. I don't think the Tax ID has anything to do with it. I have a LLC with a Fed tax ID and it is a pass through entity with the financials being reported on my schedule E.
As I said before, if his goal is to free up his DTI in order to do conforming loans, buying the right deal and having the down payment might be better for him. If the place will cash flow well, it will be an increase to the income side of his DTI without changing his expense side since they look at the net impact of the property to see if it will give him income, or be a burden and add an expense to his DTI.
It's not a trick. Again, this is a common practice for someone who has business and personal finance separated, which is what I am talking about. You keep gravitating toward the pass through model, and arguing those points, which is NOT what I am talking about.
However, I understand what you are saying, and agree with you in a pass through model. It is hard to debate it any further since neither of us has the details of the OP's personal finances, and whether they are structured separately or not.
0 Reply
James W.
Minneapolis, MN · Member since 2017 · 353 posts · 223 votes
8y
Originally posted by @Cara Lonsdale:

Originally posted by @James W.:
Originally posted by @Cara Lonsdale:

Originally posted by @James W.:
Originally posted by @Cara Lonsdale:

I'm not sure when the last time any of you bought a used car was, but there is nothing decent that you can pick up for $2K-$3K. A car like that will spend alot of time in the mechanic's and/or won't be pretty inside or out. We are just getting ready to list my daughter's 1997 honda accord that she used all through high school and college. It runs, it has AC, but that is about all it has going for it. It is a hot mess to look at.
Going from a luxury vehicle to a broke college student status might be a little harder to do than you think. And it really has little to do with ego, but rather practicality.
I think you are onto something by looking at options where your business leases the car from you. I would say purchase a decent car for cash (15K), and set up a lease that you business pays you for use of the car. Not only will you solve your car problem, but you will create more income for yourself to apply toward your personal finances, which currently show low on paper.
Leasing a car to your business is legit, and can provide some great tax benefits. Run it by your CPA and see what they think. I think this is the best solution for what you are looking to achieve.
Best of luck to you!
I picked up a 2008 Honda Pilot with 180k miles in great shape for my wife for $2,980. The seller had it priced at half of the value and just needed to let it go. She really didn't know what it was worth but posted it on facebook and I was fortunately the first one to reply back.    Even if the car only last a few years, it will be significantly cheaper than losing $3,000+ a year in depreciation. My work truck is a 2010 F150 fleet vehicle that I picked up with 190k on it for $3,500 a year and a half ago. I have not had to do any repairs for either vehicle but even if I do, it will likely be cheaper than a year of car payments. Deals on cars are out there just as much as deals on homes. You just need to look for them or know a deal when you see it.  I have purchased new and luxury vehicles in the past. I can afford a nice vehicle, but don't care to spend money on depreciating assets at this time.
In regards to buying a car and having the business lease it, I am not sure how this constitutes additional income. It may raise questions as to why he is getting lease income from a business if he claims it as an income source when applying for a loan but I am not sure a lender will count it towards his DTI. With 1-4 family conforming loans, the net impact of the property based on the fannie/freddie calculation will be looked at as an increase to income or an increase in expenses on his DTI. It doesn't add XX to income and X to expenses the way consumer debt is calculated.
I am not a CPA, but my understanding is that If he has a pass through entity for his business, the income he claims will be offset by the expense he claims as part of his business. It will have a net effect of $0 when a lender is using his tax returns to review his income.
This is actually a common practice. If he purchases a car outright, and leases it to his business for the portion of the car use that the business represents, then his personal income will be increased on his taxes for DTI purposes (therefore extra income). The lease payment is a deduction for the business.
It depends on how his business is set up and taxed, whether it impacts his personal finances or not. A corporation, or LLC with it's own tax ID # is sole and separate from personal finances and does not pass through to personal income, so the two are completely separate. I read in the OP's post that he didn't make much on paper personally, so my assumption was that he was trying to purchase based on his own personal finances, and not a combination of the two. I could be wrong there.
Either way, it is just another option to consider.
If he goes that route, hopefully it can work for him. He may be able to trick a consumer or small lender, but if anyone does a global review of his financials to include his business, it will be a wash and won't help him.
I believe the entity type and structure will determine if it is pass through or not. I don't think the Tax ID has anything to do with it. I have a LLC with a Fed tax ID and it is a pass through entity with the financials being reported on my schedule E.
As I said before, if his goal is to free up his DTI in order to do conforming loans, buying the right deal and having the down payment might be better for him. If the place will cash flow well, it will be an increase to the income side of his DTI without changing his expense side since they look at the net impact of the property to see if it will give him income, or be a burden and add an expense to his DTI.
It's not a trick. Again, this is a common practice for someone who has business and personal finance separated, which is what I am talking about. You keep gravitating toward the pass through model, and arguing those points, which is NOT what I am talking about.
However, I understand what you are saying, and agree with you in a pass through model. It is hard to debate it any further since neither of us has the details of the OP's personal finances, and whether they are structured separately or not.
The reason I call this a trick is because he is simply looking for a way to increase his DTI. He needs a car to get around-not for a specific business need. He stated that in the first post.
There are plenty of businesses with the need for a business vehicle, but it doesn't appear the case here. Having a business vehicle will require him to do a lot of work to document personal vs business mileage which could impact the amount of deduction his business might even be able to take for the expense.
At the end of they day, his income does not increase by doing this... His business income drops, due to the expense and his personal income increases by the same amount. When looked at together, I do not see how his income increased when he is simply paying himself.
If creating a business expense for the sole purpose of making your personal income look better on paper isn't a trick, I am not sure what is. It is taking money out of one pocket and putting it into the other. It does not create any new money.
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JD MartinBusiness Member
Moderator
Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
8y
I don't know what my buddies @Steve Vaughan @Joe Splitrock @Brie Schmidt are driving these days but I bet they were driving really cheap cars when they were trying to get this thing off the ground. As for me, I own 3 vehicles: a 2013 Kia Soul with 115k miles on it that I bought new for $13k (stripper model), a 2012 Kia Soul with 60k miles that my wife drives that I bought new for $15k (it's an automatic), and a 2004 Nissan Titan 4WD pickup that gets me through bad weather and does landlord duty that I've owned for a decade, bought used for $12k at 60k miles and now has 150k miles on it. All cars bought cash, no loans. Cars are money losers. And I'm a guy who *loves* cars - I'd own a dozen if I had anywhere to put them.
Before I had the "new" cars, I had a string of $5k cars. When I got tired of working on cars along with houses I bought two new cars for less than $30k combined.
Anyway, your answer is to find you a nice $5-6k vehicle, which should get you somewhere around the 100k mile mark, and drive it until you are so set that you can go buy a newer vehicle and not care. Not one of my cars that I have now, all of which I've had for 6 years or more, has ever broken down anywhere or left me on the side of the road, and if you take care of the car people will think it's new. I still have people asking me if my econobox commuter is new.
Most of my tenants have nicer cars than me. That's the way I like it!
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JD MartinBusiness Member
Moderator
Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
8y
Originally posted by @Steve Vaughan:

My multi tenants never even ask if I own the buildings because of my cars. They feel sorry for me when I roll up and work on my properties and have given me tips before when I work in their units. They are extremely loyal to 'poor' Steve that takes such good care of us but can only afford a beater.
LOL. That's freaking great. I've had the same experience, but not with cars - I've had people who have come to look at properties ask if I knew the landlord or if I was the gardener. Somehow the mental image must be of some fat cat rolling around giving orders, not showing up in work boots and doing some yard work.
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Brie SchmidtBusiness Member
Moderator
Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
8y
I love my 2010 Nissan Rouge with 51k miles on it. I bought it used in 2014 with 28k miles on it, so you can see how much I drive. But my car fits a bathtub (no joke) and a 6 foot ladder in it and pretty much anything I want from home depot.
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Joe SplitrockPro Member
Moderator
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
8y
Originally posted by @JD Martin:

I don't know what my buddies @Steve Vaughan @Joe Splitrock @Brie Schmidt are driving these days but I bet they were driving really cheap cars when they were trying to get this thing off the ground. As for me, I own 3 vehicles: a 2013 Kia Soul with 115k miles on it that I bought new for $13k (stripper model), a 2012 Kia Soul with 60k miles that my wife drives that I bought new for $15k (it's an automatic), and a 2004 Nissan Titan 4WD pickup that gets me through bad weather and does landlord duty that I've owned for a decade, bought used for $12k at 60k miles and now has 150k miles on it. All cars bought cash, no loans. Cars are money losers. And I'm a guy who *loves* cars - I'd own a dozen if I had anywhere to put them.
Before I had the "new" cars, I had a string of $5k cars. When I got tired of working on cars along with houses I bought two new cars for less than $30k combined.
Anyway, your answer is to find you a nice $5-6k vehicle, which should get you somewhere around the 100k mile mark, and drive it until you are so set that you can go buy a newer vehicle and not care. Not one of my cars that I have now, all of which I've had for 6 years or more, has ever broken down anywhere or left me on the side of the road, and if you take care of the car people will think it's new. I still have people asking me if my econobox commuter is new.
Most of my tenants have nicer cars than me. That's the way I like it!
I am driving a ten year old minvan that has radar detection avoidance built in. By radar detection avoidance, I mean nobody pulls over a family hauler for speeding. My theory is the police feel bad for anyone driving a minivan and would rather spend their time giving tickets to people in sports cars or luxury sedans. Just another way that fancy cars cost more.
JD you bring up a good point which is that new cars can be purchased for $15K and cars like Hyundai and Kia are the new Honda/Toyota. They are inexpensive, fuel efficient and reliable.
6 Reply
Eric Traboulay
Flipper/Rehabber · San Diego, CA · Member since 2016 · 17 posts · 4 votes
8y
Hi Brian,
If you plan to buy a property soon DO NOT LEASE or FINANCE a car right now! It will not only raise your DTI but also may ding your good credit score slightly. You want to maintain your zero debt and good score will applying for home financing. If you need a set of wheels and still want a little bit of luxury, I would recommend buying a nice salvaged vehicle. Just make sure you have a mechanic look at it so you know what the previous damage was and what you may need to fix down the road. Use craigslist, offer up, or autotrader.com. Hope this helps.
Eric
1 Reply
Jesse Bath
Developer · Bend, OR · Member since 2017 · 10 posts · 7 votes
8y
No question about it, Pay cash for a cheap vehicle. That’s what the disciplined investor would do, right? Funny to even be having this talk, it’s such a personal decision. Maybe even find a deal from an auction broker and make some money on your way in to the vehicle, lol.
2 Reply
Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
8y
Brian Garrett if you lease a car you will simply be paying more than the cost of a used car over time. Pay 5k up front or pay it out over several years. Drive a nice used car that’s reliable. All the wealthy people I know avoid luxury and new cars like the plague. I know one guy who just bought a 2016 challenger for 16k. Guy before him paid 33k. Think about that, 50 percent depreciation in 18 months. Absurd.
2 Reply
Randy E.
Rental Property Investor · Durham, NC · Member since 2014 · 1k+ posts · 1k+ votes
8y
Originally posted by @JD Martin:

Most of my tenants have nicer cars than me. That's the way I like it!
LOL
Me too!
2 Reply
Randy E.
Rental Property Investor · Durham, NC · Member since 2014 · 1k+ posts · 1k+ votes
8y
Oh, and while we're bragging on our vehicles, I have two. A 14-year-old minivan with 200,000+ miles and nearly as many scratches and dings, that I bought ten years ago as a 4-year-old used vehicle. And a 10-year-old VW with 150,000+ miles that is a sharp looker next to the minivan. I bought the car two years ago for less than $6K. I drive about 60,000 miles a year, mostly on the car.
I'm hoping the minivan lasts at least another 18 months ... but I say that every year. And every year it delivers. I love that minivan -- it always delivers us safely to and from family vacations. Cars usually give me four year before calling it quits, so I figure I have two more years left with the VW. If I had my wish, the van would give up the incessant knock it's had for the last four years and I'd keep it another five years.
0 Reply
John Woodrich
Flipper/Rehabber · Minneapolis, MN · Member since 2016 · 1k+ posts · 1k+ votes
8y
Originally posted by @Cara Lonsdale:
It's not a trick. Again, this is a common practice for someone who has business and personal finance separated, which is what I am talking about. You keep gravitating toward the pass through model, and arguing those points, which is NOT what I am talking about.
However, I understand what you are saying, and agree with you in a pass through model. It is hard to debate it any further since neither of us has the details of the OP's personal finances, and whether they are structured separately or not.
This is NOT common practice and will likely not matter at all. He should NOT lease a vehicle to his company and pickup income on his return.
1. Unless he is a C-Corp, any company deductions will be taking at his individual level. If he added $6,000 of lease income to Other income on his return, it will be offset by $6,000 of additional business lease deductions making this whole screw job have no effect. If he had a C-Corp which is very unlikely he would essentially be paying extra tax at his individual level to try and dupe a bank to think he has more income.
2. When the bank asks "what is other income" what is he going to say??? Well Sir - that is the income I am being paid from my corporation because I am leasing them the vehicle that I am personally using every day.... I set it up this way to try and make it look like I had more income than I have!.... That will sure be easy to explain and give the bank a lot of trust in someone.
Ignore this idea, will have no effect unless you have a C-Corporation (doubtful) and if you have a C-Corp and low personal income you should really be concerned with who is giving you tax advice.
If you don't want a car to effect your DTI, pay in cash. Any loan or lease will effect you negatively.
0 Reply
Cara Lonsdale
Realtor and Investor · Scottsdale, AZ · Member since 2017 · 1k+ posts · 1k+ votes
8y
Originally posted by @John Woodrich:
Originally posted by @Cara Lonsdale:
It's not a trick. Again, this is a common practice for someone who has business and personal finance separated, which is what I am talking about. You keep gravitating toward the pass through model, and arguing those points, which is NOT what I am talking about.
However, I understand what you are saying, and agree with you in a pass through model. It is hard to debate it any further since neither of us has the details of the OP's personal finances, and whether they are structured separately or not.
This is NOT common practice and will likely not matter at all. He should NOT lease a vehicle to his company and pickup income on his return.
1. Unless he is a C-Corp, any company deductions will be taking at his individual level. If he added $6,000 of lease income to Other income on his return, it will be offset by $6,000 of additional business lease deductions making this whole screw job have no effect. If he had a C-Corp which is very unlikely he would essentially be paying extra tax at his individual level to try and dupe a bank to think he has more income.
2. When the bank asks "what is other income" what is he going to say??? Well Sir - that is the income I am being paid from my corporation because I am leasing them the vehicle that I am personally using every day.... I set it up this way to try and make it look like I had more income than I have!.... That will sure be easy to explain and give the bank a lot of trust in someone.
Ignore this idea, will have no effect unless you have a C-Corporation (doubtful) and if you have a C-Corp and low personal income you should really be concerned with who is giving you tax advice.
If you don't want a car to effect your DTI, pay in cash. Any loan or lease will effect you negatively.
John, while I appreciate your comments as a welcomed addition to the conversation, you have misrepresented what I posted. I WAS speaking in terms of a corp.
There ARE advantages to "swapping" income. It may be that the OP's business is not related to his RE purchases and cannot be used for qualifying for RE purchases. He also mentioned that his personal income was low on paper. So, my suggestion was made as a way to increase his personal income on paper.
It is not a trick to the lender. There are all kinds of things that they do to increase income for DTI purposes like adding back in depreciation (as 1 example). So, there is nothing sorted, or illegal, or "tricky" here.
See this link that talks about leasing assets to a business from a CPA.
Leasing Assets to Your Business
Also, I mean no offense by this, but sometimes CPAs don't always give the best advice when it comes to RE investments as they have 1 very narrow minded view, which doesn't always relate to the greater picture of an investor's strategy. As an example of this...when my parents moved out of their home and into a new one, they contemplated keeping the old house and holding it as a rental. The CPA talked them out of doing this citing that they wouldn't have the interest to deduct on their taxes because they had paid off the mortgage, and scared them into thinking that because they wouldn't have that, in adition to the ability to eliminate the taxes on a gain as a primary residence, it would be a losing proposition. ARE YOU KIDDING ME?! A rental that is paid for, collecting rental income and appreciation over the course of however many years be a losing proposition?! My parents have regretted that decision ever since. I have had countless other clients come to me with similar stories. So, sometimes just looking at it from a CPA angle isn't always the best route.
And not every idea is a sketchy one just because YOU don't see the value in it, or have ever come across it before. So, maybe your harsh words can be toned down a little in the future to allow for everyone's ideas to be presented and not disparaged.
0 Reply
John Woodrich
Flipper/Rehabber · Minneapolis, MN · Member since 2016 · 1k+ posts · 1k+ votes
8y
@Cara Lonsdale it is clear you are trying to think outside of the box but this will not work for him because A) he likely doesn't have a C-Corporation and B) this will not pass muster when he has to explain to the bank what he is doing. Remember, this is his personal car he drives around in daily and his business income likely ends up being reported on his 1040 one way or another. As I mentioned above, there are reasons for people to operate as C-Corporations but they typically don't make sense for self-employed individuals. If he has a C-Corp he could try this but this would not fly in an audit nor would it pass the smell test for a lender.
Separately - that article you posted relates to C-Corporations and like most things you find on the web, people throw out ideas to make them self seem smarter than others. There are clear business reasons to engage in a lease with a business you own but it has nothing to do with these shenanigans.
I have a master's degree in Tax - if you want to debate with me how income and expenses should be reported or what the tax reporting differences for different legal entities are feel free to message me. I think we are past adding value to the original poster.
0 Reply
Michelle Verdugo
Brooklyn, NY · Member since 2018 · 45 posts · 18 votes
8y
@Steve Vaughan I hear you! Good points... After reading this long thread I realized IF (IF!) I buy a car, it's going to be a cheap used car. Maybe not multi colored but hm.... maybe.... thank you for the great advice.
2 Reply
Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
8y
Originally posted by @Michelle Verdugo:

@Steve Vaughan I hear you! Good points... After reading this long thread I realized IF (IF!) I buy a car, it's going to be a cheap used car. Maybe not multi colored but hm.... maybe.... thank you for the great advice.
That's awesome, Michelle! Can't tell you how much I've saved by having no payments over the years. I've paid off 19 rentals, so there ya go.
If you invested the avg new car payment of $478 into the s&p 500 index instead it would grow to be worth over $1,000,000!
2 Reply
Jeremy Scherer
Lender · Hudsonville, MI · Member since 2015 · 35 posts · 28 votes
8y
If you insist on leasing a car, have you considered leasing it in a company name? I’m assuming your self employment isn’t cash under the table and you have some sort of LLC, etc. Hopefully you even have some business credit established. This would allow you to lease with minimal down, not effect your DTI (assuming you don’t need to personally guarantee the loan), take advantage of another tax deduction, and build/establish more business credit. Before all of that, I would find a good lender and CPA. Math is just math, you need someone who knows what they are doing and can explain to you how they are doing the best job for you.
0 Reply
Cara Lonsdale
Realtor and Investor · Scottsdale, AZ · Member since 2017 · 1k+ posts · 1k+ votes
8y
Originally posted by @John Woodrich:

@Cara Lonsdale it is clear you are trying to think outside of the box but this will not work for him because A) he likely doesn't have a C-Corporation and B) this will not pass muster when he has to explain to the bank what he is doing. Remember, this is his personal car he drives around in daily and his business income likely ends up being reported on his 1040 one way or another. As I mentioned above, there are reasons for people to operate as C-Corporations but they typically don't make sense for self-employed individuals. If he has a C-Corp he could try this but this would not fly in an audit nor would it pass the smell test for a lender.
Separately - that article you posted relates to C-Corporations and like most things you find on the web, people throw out ideas to make them self seem smarter than others. There are clear business reasons to engage in a lease with a business you own but it has nothing to do with these shenanigans.
I have a master's degree in Tax - if you want to debate with me how income and expenses should be reported or what the tax reporting differences for different legal entities are feel free to message me. I think we are past adding value to the original poster.
Again, I WAS referring to a Corp. so my post, my link, my point was geared toward a Corp. so everything you just said, and before as well, argues against a point I am not trying to make, but rather reiterates that YES this would work for a Corp.
I am sure you are a great CPA. I stand by my comments, and have seen them in practice. But what do I know?! I’ve only been in real estate for 21 years... as long as we are exchanging resumes...
good luck to you.
0 Reply
John Woodrich
Flipper/Rehabber · Minneapolis, MN · Member since 2016 · 1k+ posts · 1k+ votes
8y
Originally posted by @Cara Lonsdale:

Again, I WAS referring to a Corp. so my post, my link, my point was geared toward a Corp. so everything you just said, and before as well, argues against a point I am not trying to make, but rather reiterates that YES this would work for a Corp.
If you read my posts I am also referring to a "Corp". A "Corp" can be taxed in more than one way and if he has a Corp, it is unlikely that it is taxed in a manner which this will move any income or expense off his tax return, it would be a wash. If he has a Corp taxed as a C-Corp, then this could better his DTI but this is unlikely and it would be hard to justify the income to a banker.
0 Reply
Amy Beth
Rental Property Investor · Edison, NJ · Member since 2016 · 753 posts · 565 votes
8y
If real estate is your goal then buy a used car which may be ugly but is mechanically sound.
1 Reply
Brian Garrett
OP
Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
8y
@Account Closed No but you can take it to the airport to go to the Bahamas :)
0 Reply

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