Would you leave your W2 for this?

Question

Hello BP’s

I’m currently house hacking my duplex and have another triplex under contract and try to leave my current job (UPS truck driver) to open my LLC right after I close on my current deal but the problem is my lender will not provide any more loans before I do 2 years with my LLC since I will be doing 1099 instead of W2

Any ideas how to solve this dillema?

Thank you for taking the time to answer this.

Bill B. · Answer

You can manage 12 SFR properties with less than 4 hours per month. So unless you have 50 properties or more you certainly don’t have to quit a job, especially a job with so many opportunities to handle phone calls.

Shaun Weekes · Answer

From a lending standpoint I tell all my clients to wait until their RE income surpasses their W2 income.  At that point you're not missing a beat income wise.

This will also keep you motivated to fund as many deals as possible to get out of the the 9 to 5.

I hope this helps and have a good one.

Greg Scott · Answer

First of all, a portion of your rental income should qualify as YOUR income for purposes of future loans, if you have the property in your name.  But, if you are running everything through an LLC, I do believe you need 2 years of returns.

The most conservative course of action may be to keep your job for a while longer, buy a few more properties in your name and only quit when your rental income is enough to continue buying more properties.

Shaun Weekes · Answer

This isn't 100% accurate.  If you're a truck driver and you become a 1099 employee and file on Sch C you can use one-year Tax returns.  Here is what you'll need to do to make this work.

• Your CDL for 2 or more years to prove that you have had a license for at least 2 years
• You're going to want to make sure you don't write off too much of your profit so that you can qualify for a loan

If you can do these 2 things, you're pretty much home free.  Freddie will do this for sure and Fannie will as well but not as often as Freddie.  Take 1-year tax returns that is.

If using schedule C, you'll want to make sure if you're writing stuff off it's placed on line items that you can add back to your income like line 6, 12, 13, 24b and 44a.  Google Schedule C document and you'll see what those line items are.  For truck drivers I’ve seen time and time again line 9 being written off but this can’t be added back so you’ll lose that income from a net income standpoint.

If you can truly make 3 to 4 times more as an independent owner, I would start doing that tomorrow!!! You’ll have to wait one year but you’ll be able to buy more homes because you just gave yourself a huge raise.

Last thing is that you really are going to want to use a loan officer or broker that has experience with investment loans and all the current COVID-19 guideline changes to for self-employed borrowers.  I would strongly recommend putting all your 1099 income in a business account to show valid deposits as you will need to show this to "prove" you're in business still.  Keep track of your gross sales/deposits on a month-to-month basis so that you can create a Profit and Loss statement on the fly as well.

You can do this you just need to educate yourself and have a team around you of experts in the different fields you need like a great investment friendly Realtor, Contractor, Appraiser, Property Manager and of course a Loan Officer.

I hope this helps and take care.

Bill B. · Answer

@Harith Hadi

That’s fine, that’s totally different than quitting your w-2 in the way most people mean.

Figure out if you’re going to buy anything in the next 6 months. If so, buy that one then quit. You’ll have 2 full tax returns of rental income 18 months later and your rental income will all count.

Erica Swallow · Answer

@Harith Hadi Some lenders will take 1 year of 1099 if the 1099 work is in the same industry as your W-2 work. So, if your situation turns out as you say, and you make more on 1099 in that first year, lenders are likely to take your previous W-2 income, along with that first year of 1099, as evidence that you’re good to go. Just ask your lender. (And even so... why stay W-2 if you can make 3-4X more as a 1099? I’d say that’s good enough reason to switch now, even if you had to wait 2 years to buy another property. But realistically, you’ll find a lender who will see your work as being in the same industry and take 1 year of 1099 tax returns and be good to go.)

Matt M. · Answer

@Harith Hadi

Since 2008, as a self employed contractor, it has been super difficult to get financing.. that’s my 2 cents. Not easy without w-2.

Curtis Yoder · Answer

If you plan on making RE Investing your business you will have to establish a book of properties before moving on. Almost all banks will be hesitant to loan to you if you have no W-2 income and just a small handful of rentals.

IMO, I would keep building the rental portfolio until it is large enough to not only replace your W-2 but to give you enough profit to keep building your book. Then you will be on a solid track to financial freedom.

Harith Hadi · Answer

Thank you every one.

that was very helpful.

Harith Hadi · Answer

@Shaun Weekes

That was extremely helpful

Thanx alot

Would you leave your W2 for this?

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