Using STR/MTR income to qualify for my next house hack
One of the most common house hacking strategies in the Denver metro area is the Airbnb House Hack. That consists of buying a single family home with some form of separate living space to rent out as a STR and help offset living expenses.
The Downside
- Lenders Calculate STR/MTR Rental Income Differently- From a lender's perspective, any rental income received on a term less than 12 months is NOT calculated the same way a traditional long term rental is.
- FYI- for a long term rental, a lender will consider the income right away (75%) if there is a signed lease agreement or an appraiser' estimate
- STR/MTR Income Must Show Up On Your Tax Returns- Before a lender can recognize that income for underwriting to offset your DTI, they must see it reported on a schedule E on your most recent tax returns.
So, What Does All Of This Mean?
If you purchase House Hack #1 (an Airbnb House Hack) on January 1, 2023, you cannot purchase House Hack #2 until you receive your tax returns back in early 2024, assuming you need that rental income to offset your DTI.
What's Next?
- Report Your Income!- Properly document your rental income on a schedule E and report it to the IRS.
- Connect with an Investment Friendly Lender- Not all lenders are equal. Connect with a lender familiar with your investment strategy to set yourself up for success and continue building your house hack stack.
I recently interviewed a local lender to dive deep into these details and talk about all the nuances. Happy to share the recording.
Most Popular Reply
You hit the nail on the head. A lot of house hackers downgrade their income to pay less taxes. You might pay less in taxes but it'll be harder to qualify for the next loan. It all depends on where you are in your investing career on whether you should optimize for loans or taxes. I recommend my buyers take their tax return draft to their lender to discuss the pros and cons of taking certain deductions.