Income to Debt Ratio challenges

3 Replies

Ive been doing rentals since 2016, but just last year went into it fulltime. I have over 10 properties and all cashflow. Last year I paid myself to do the contracting work, as its something I do and enjoy. At tax time, my tax person said all that 1x income I pay myself for 1st year renovations is categorized as a deduction on my tax return and not income. Which is good for paying less taxes, but bad for debt-to-income ratios and getting loans. This led to showing a low income to debt ratio on my taxes and now challenging to get banks to give me more loans.

Any ideas would be helpful.

Thank you.

@John Hilyard John, why not just start buying the properties in entities (LLC's)? The lenders will no longer use your personal income in determining the income underwriting. Instead they will use the rental income (lease) of the property being underwritten. Typically they will not even ask for personal tax returns, as the loan is supplied to the entity and you, as the member, are the guarantor. The rate might be a little higher, but nothing will appear on personal credit and you can have as many open loans as needed. Time to think about approaching commercial rental loan lenders and taking title in LLC's.