Chattanooga, TN · Member since 2010 · 319 posts · 100 votes
Hey Guys
I'm new here and would love to answer any questions you have regarding getting financing for investment properties.
I'm an underwriter at a bank that specializes in real estate investment properties.
I'm also an real estate investor myself.
NOTE FROM MODERATOR: "ANYTHING" DOES NOT INCLUDE "WHERE CAN I GET A LOAN", "WHAT ARE YOUR TERMS FOR ..." OR "WHAT LENDER DOES..." OR ANY SIMILAR QUESTIONS. SUCH POSTS MUST GO INTO THE MARKETPLACE.
When flipping houses how do you avoid the objections that pop up regarding the low acquisition price and a much higher selling price? And the appraisal comes in at the asking price. How can you flip the house as soon as possible at market value and have lenders approve the mortgage? Is there a percentage of mark up that they feel is acceptable?
You made the choice to favor "tax write-offs" instead of profit and this is what underwriters like me look for to underwrite a loan.
This is an aside, but thought some might be interested...
Just to add some color on why Matt probably prefers to claim "professional gambler" status as opposed to something else -- it's not just for the tax write-offs. It's also based on a tax system that doesn't handle gambling income in a very logical way.
Technically, you are supposed to report all of your gambling wins/losses on your taxes. In other words, let's say that you play 30 sessions of blackjack over the course of a year. Let's also say that you in 15 of those sessions, you win $50K total. And let's say that in the other 15 sessions, you lose $50K total.
A logical person would assume that you can claim $0 in gambling winnings over the course of the year. But, that's not the way the tax code works. Technically, you're supposed to report $50K in winnings as income, and then report $50K in losses as an itemized deduction on Schedule A.
Seems like it should result in the same thing -- the two even out and there is no extra tax due. But, now imagine a professional gambler. He might play 300 sessions over the course of the year, and might win $1M over some of those sessions and lose $900K over other sessions.
Using the system above -- winnings as income and losses on Schedule A -- this person is going to pay tax on a lot more than than the $100K in winnings. He'll also be on the hook for AMT for the $1M in income!!! I don't know if anyone reading this has ever had to pay AMT on large amounts of income, but given the scenario above ($100K in net winnings), the gambler could potentially pay more tax than the amount of his net winnings...literally.
By claiming "professional gambler" status, the gambler above wouldn't have to claim $1M in winnings and $900K in Schedule A deductions. Instead, he could just claim $100K in net income on the top line, and avoid AMT.
The tax difference in these two filing strategies could potentially be between making good living and actually losing money each year -- even with the same amount of net income.
I also got question:
If I pay $1400 rent for more that 2 years, can I get a loan with payment close to this number to buy primary residence. 2011 W-2 44K, 2012 W-2 30K?
Can I use rent payments as history that I'm good with this amount?
I also got question:
If I pay $1400 rent for more that 2 years, can I get a loan with payment close to this number to buy primary residence. 2011 W-2 44K, 2012 W-2 30K?
Can I use rent payments as history that I'm good with this amount?
Unfortunately, it doesn't work that way. The underwriting guidelines will focus on your credit score and your debt-to-income ratio (DTI).
If you're earning $30K per year, that's about $2500 per month. An underwriter may allow your debt to income ratio (including the loan) to be somewhere in the 36-44% range. That means your total monthly debt allowance from an underwriter's perspective is between $900-1100.
If you have no other debt (no credit card balances, no car payment, no school loans, etc), then you can probably qualify (assuming everything else in your financial resume is good) for $900-1100 per month. That's best case.
Do you report your 1099 within a Schedule C business? If so, the underwriter will look for other deductions to add back, such as depreciation and interest expense.
Jimmy Moncrief
Couple of questions.
1) I have 19 rental properties plus my primary but only 7 mortgaged homes in my name (6 rentals and 1 primary). The rest are commercial loans under my corporation and don't show up on my credit pulls.
Q1 - Can you tell me if I would be able to qualify for conventional financing if I were to want to buy a house for my primary residence? Would I be able to qualify for those homepath loans (3% down?)
2) Q2. You said you work at a bank that specializes in investment property loans. Do you have any sister banks or other banks in Illinois? Or better yet, would it be worth my while to message you and ask you that seeing as how I did read your initial post and that may be out of the realm of this board? :-)
Jimmy or to others that might know; is it right that if I were to get a co-signer for my primary that I would still get as much credit for home ownership as I would if I was pre-approved as long as I didn't miss any payments? I was told this from the last bank I was talking to when making an offer on a home.
Perhaps more importantly, as I think I said earlier in this thread, I have a business with a good friend where we buy-and-hold and lease to tenants. The first 3 homes are in his name & after the fourth it will be my turn to step-up & put in my name. From the sound of it, it seems as though it will take approx 2 years before I'm pre-approved, if at all.
My question is could he be my co-signer for when we put the homes in my name for our business? Would that count against him in any way? We are in it 50/50 & plan to do this for many years yo come.
Matt Lawrence I am probably not the best person to answer your post but from my understanding if he were to co-sign for one of your houses it would also count towards one of his. Lets say your bank has a 10 mortgage limit, you've now subtracted 1 from your combined total of 20 because of the co-signing.
Ok, if that's accurate, do you think that would vary from lender to lender &/or state to state? I'm still trying to get a better understanding of what are basic rules and which can vary depending on policies, location, etc.
Great comparison there on the post describing the differences in gambling income; however, the IRS will frown upon deducting more than your winnings even as a professional gambler.
I like to ask for seller concessions on my non-"investment" mortgages, but the max for an investment property is 2%. Is there a way to structure this as a repair escrow instead? If so, what is the maximum percent? What are any drawbacks of doing it this way?
Any other legal/ethical ways to get cash back from seller for repairs as opposed to just a reduced price?
Hi, I have a question in regards to FHA 203K and Home Path Renovation loans. There is a 2bdrm that I could convert into a 4 by converting a porch and dining room into bedrooms. Would these loans cover that kind of thing? OR would they say 'no' because these types of improvements aren't really necessary?
Hi, I'm in the acquisition stage of rental properties. 3 so far in austin. I personally rent at a duplex.
I want to know which of the expense items on my taxes can be added back in as income under the Fannie/Freddie rules in the eyes of underwriters. I've spoke to various loan officers they say gas and office space in my home for sure, as well as depreciation but what about
A) repair on rental property (electric/plumbing/roof)?
B) add-ons to rental property (room addition/awning/pool)?