All Forum Posts by: Philip Johnson

 On your schedule E you can add back depreciation so don't worry about that.  

Top 3 things I routinely see on Schedule E that screw up an investor's calculated DTI:

- Fair Rental Days. CPA software defaults to 365 and it has no impact on your tax bill so most CPAs leave that default value in without even thinking about it. But underwriting uses this number to calculate your net monthly rent! So if you buy a $2k/mo property that you started renting in our in November, you will show $4000 in gross rents on your taxes. If that default 365 days is in there (instead of 60, in this case), an underwriter is going to divide $4,000 by 12 months and think you only get $333/mo in gross rents! You literally just told the IRS that 365 days of rent is only $4000... Sometimes you can fight them on this, but isn't it easier to just have accurate numbers on your tax returns and skip playing underwriting ping-pong (Back and forth, back and forth)? Does anyone here that purchased a property last year want to pull up their Schedule E and tell us what they see? This is BY FAR the most common one.

- Depreciation. The above is clearly an error, this one is a choice. Some things you can write off as a "repair" OR you can depreciate them as capital improvements over the course of several years. Underwriters assume that "repair" items are annual/recurring (DTI hit), and depreciated capital improvements are one-time in nature (no DTI hit). So depreciate everything your tax professional says you can! If your income is trending upwards, this will probably result in more tax savings over time anyways.

- Each property is a property, not each unit. A triplex is ONE property, not 3 properties. So we should expect to see 123-127 Main Street, not 123 Main, 125 Main, and 127 Main.

 I didn't realize Eureka had such a bustling market. My cousin lives in Fortuna and tells me mail still arrives by stage coach. Lol

You are fighting a uphill battle if the bank won't work with you. Are you investing locally or out of state? If locally I don't know if my suggestion works but it certainly works in Phoenix, Las Vegas and the midwest. Take a look at the spreadsheet in the link and feel free to ask any questions that will help you decide if it works for you - You don't need to get a new bank loan to buy income producing properties:

Average Turnkey Cash Flow Per Door In Phoenix Metro Area Without Getting Bank Financing

https://www.biggerpockets.com/forums/600/topics/584916-average-cash-flow-per-door-in-phoenix-metro-area

 Your income is based on your 1040s, specifically for you your schedule E. So even though your homes cash flow you're most likely writing off all profit.  So on paper your homes could be showing negative income.  

Depending on your goals for home purchases or refinancing this year you might want to show profit on your taxes.  But your best bet is to have your cpa write up the taxes and before he/she submits electronically have your loan officer or broker verify that the income is acceptable.

You'll need to have reserves in the amount 4% of all loan amounts of investment and 2 months of payments on your primary.

So if you have 400k in investment property mortgage you'll need 16k in assets plus 2 of your primary mortgage payments saved up.

I hope this helps and if you need a more detailed answer feel free to reach out to me.

First off well done for only having a 90$ credit card payment! It seems like most people have a stack of credit cards, multiple car payments, student loan, etc. 

Hopefully another lender can chime in. The standard amount of your rent you can claim as income is 75% of rent you collect. They estimate the other 25% will go to repairs, vacancies, etc. So if you rent a house for 1000 they only take into account 750 as income they can use.  The wild card is your #5 property. I'm guessing either you're living in it or you aren't getting rent from it. Because I did a quick calc and got 41% for your dti.

Here's where it gets a little fuzzy for me. I want to say that if these properties have been on your tax returns for a couple years and you can prove the track record of income, you can go higher than the generic 75%. So if over the last 2 years only 15% of your rental income went towards repairs, vacancies, etc. they could technically use 85% of your rental income to qualify. If this is the case though, they would want a thorough paper trail. Leases, receipts, bank statements, copies of checks, etc.

Like I said hopefully another lender can give their input on this. It's been a while since I've had to deal with this type of scenario.

You can get a commercial loan-- then the quality of the deal and your overall assets matter more than DTI.

What is your rental net iterating income not gross rent? Your dti without counting rental income is 57%. I am guessing your expenses are high on the rentals and they are on,y giving you credit for part of your rental income. I those numbers are right you have a pretty high dti

It means 48% of your income is being used up servicing debt (mortgages, student loans, car loans, credit cards, HELOC, child support, etc)

Each lender has their own set of rules if the loan is going to stay "in house". If it is being sold or insured by the government, standards are set by them as to what a max DTI ratio is acceptable.

The cure is to pay off some of the debt so you don't have the payments to make.