Should I establish a business entity for my first rental?

[Oswald Gomez]

25M from Sacramento, CA and I bought my first rental home in June of 2019. I plan on purchasing more once I save up enough for closing costs again. Now my question is, should I establish a corporation entity for my rental in order to claim the business as additional income? When I apply for the second loan would they consider the debt from the first mortgage as taken care of from the rent? I apologize in advance if this is a silly question I am very very new at this. Thank you!

[Andy Webb]

No - you don't need an LLC or other corporation to show income from the rental - it will appear on your personal tax return.

When you go to do your next loan, the underwriter will look at both the debt from that 1st rental as well as the net income. They will go to your tax returns for the income, or if no return available yet, will apply a % to gross rent to get to a theoretical net cashflow. Talk to your mortgage broker or lender about the specifics and they can tell you how you stand in terms of debt-to-income (DTI).