Rental Property Income & the 2 year Rule

General Landlording & Rental Properties
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Rental Property Income & the 2 year Rule

Bill Mitchell
Mansfield, TX · Member since 2013 · 207 posts · 26 votes

In order for rental property to be counted towards regular income you must have the property rented out for 2 years.

My question is does the 2 year rule apply to each property separately? Or once you have had a rental property for 2 years, at that point any additional property you purchase and rent from there on out will automatically be counted towards your income without having to wait 2 years.

Thanks

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Bill Walston
Real Estate Investor · Northeast TN, TN · Member since 2008 · 516 posts · 361 votes
12y

@Bill Mitchell I'm assuming that you mean the two years of landlord experience that Freddie requires before allowing you to count the projected rent as income for loan qualification. (Fannie does not have this requirement.) Once you hit the two years of experience that's it..it's not a per property qualification.

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  • Cory BinsfieldPro Member
    Financial Advisor · Duluth, MN · Member since 2012 · 157 posts · 194 votes
    12y

    I'm not a mortgage broker, but I believe it's per property. My girlfriend ran into this issue when I helped her acquire a SF college rental. She got so mad at the bank and all the crazy rules that she paid cash for the property-against my advice mind you. These days, I use commercial lenders and don't have to worry about this rule. The terms are worse than Fannie or Freddie, but it's so much simpler.

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  • Bill Walston
    Real Estate Investor · Northeast TN, TN · Member since 2008 · 516 posts · 361 votes
    12y

    @Bill Mitchell I'm assuming that you mean the two years of landlord experience that Freddie requires before allowing you to count the projected rent as income for loan qualification. (Fannie does not have this requirement.) Once you hit the two years of experience that's it..it's not a per property qualification.

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  • Brie SchmidtBusiness Member
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    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    12y

    I can only speak from my personal experience. We bought a rental in Aug 2011 and listed it on that years tax returns. Once our 2012 taxes were filed in February of 2013 we cleared the 2 year rule - even though it was not a calendar 2 years.

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  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    12y

    I will also note that we were approved for a second property in Oct 2012 (1 full year of landlording and only 4 months on tax returns) with sufficient reserves - which they considered 12 months of mortgage payments in the bank + 25% down so it is negotiable

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  • Andy Collins
    SFR Investor · Dallas, TX · Member since 2011 · 604 posts · 243 votes
    12y

    What I have experienced is two rules,

    1. two years of landlord experience (or two years of that income showing on tax returns

    2. after you cleared the first hurdle, any property that hasn't shown up on your tax return for 2 years, they figure 75% of lease amount, less PITI, after that property has been on two years returns they use the actual from the returns on that property

    andy

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  • James Syed
    Real Estate Broker · Mount Olive, IL · Member since 2013 · 1k+ posts · 310 votes
    12y

    @Bill Mitchell Freddie Mac requires two year landlord history documented on your tax returns and Fannie Mae doesn't require it, however, they still want to see yearly signed leases for a minimum of 1 year.

    If you go conventional, you won't have to worry about landlord history requirement, but most lenders won't give you a 30 year fixed loan, but a 3 - 5 year balloon loan.

    Hope it clear up a little.

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  • Elizabeth Colegrove
    Hanford, CA · Member since 2013 · 5k+ posts · 1k+ votes
    12y

    @Bill Mitchell

    We have been told it's 2 years of total personal experience with the rentals on your tax returns. Once that hurtle is met, they count what is on your tax returns. So if you closed the house in Nov. and you are trying to use it to buy it the Sept. following they will only count what is on your returns.

    THAT BEING SAID

    I have found that you need to shop around. We do not have 2 years of experience yet and we have been able to still find brokers to count our leases/tax returns.

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  • James Syed
    Real Estate Broker · Mount Olive, IL · Member since 2013 · 1k+ posts · 310 votes
    12y

    @Bill Walston Thank you, Bill Walston.

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