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Rental income

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New Visitor

Rental income

I don't make a lot of money. However I do have several credit cards with high limits and zero balance. I have gotten into real estate and I've used credit cards to purchase real estate from sheriffs sales in the inner city. Believe it or not I purchased two properties under $7000. I'm getting a promotional rate with the credit cards for 18 months in the homes are already rented
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I'm wondering how I can use the rental income to qualify for a mortgage in the future? I'm talking like 2years down the road?! My accountant wants me to set up individual LLCs for my properties if I am going to purchase more. He advises me that having rental properties are tax advantageous and usually declare losses on paper? I'm on the assumption that since the properties declare a loss in some capacity then the income cannot be used for any sort of mortgage approvals?
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Valued Contributor

Re: Rental income

you are correct.  for mortgage purposes, i recommend only deducting (on your taxes) the expenses that normally get added back to the rental income...depreciation, and mortgage payment (to include insurance and taxes).  

 

if you include your rental income on your taxes each year, you should be ok to include 75% of it as income on your mortgage application.

 

i'm not sure about the LLC part though...someone else will have to chime in.

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Re: Rental income

I can tell you from a practical point of view (not a legal POV) that having each property in its own LLC is an excellent idea. Most of my investor clients do that after they own more than 2 or 3 rentals in their name.  Another good way to purchase is by using a Self Directed IRA and holding the property that way. This reduces risk to you either by tenants directly or by their guests and invitees. Here is a link to get started on your research so you kow what to ask your attorney about the subject: http://www.jurislawgroup.com/Articles-and-Publications/how-to-hold-property-in-an-llc.html

 

The best thing to do is to discuss with both a good real estate attorney and a good CPA the ramifications of holding the properties in LLCs from a liability and financial POV.

 

As to using the income to support a mortgage - that is a whole separate goal. Maximum deductions and supporting a mortgage are generally mutually exclusive goals. Choose one goal and go for it. Speak to your attorney and CPA first.

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Valued Contributor

Re: Rental income


@StartingOver10 wrote:

I can tell you from a practical point of view (not a legal POV) that having each property in its own LLC is an excellent idea. Most of my investor clients do that after they own more than 2 or 3 rentals in their name.  Another good way to purchase is by using a Self Directed IRA and holding the property that way. This reduces risk to you either by tenants directly or by their guests and invitees. Here is a link to get started on your research so you kow what to ask your attorney about the subject: http://www.jurislawgroup.com/Articles-and-Publications/how-to-hold-property-in-an-llc.html

 

The best thing to do is to discuss with both a good real estate attorney and a good CPA the ramifications of holding the properties in LLCs from a liability and financial POV.

 

As to using the income to support a mortgage - that is a whole separate goal. Maximum deductions and supporting a mortgage are generally mutually exclusive goals. Choose one goal and go for it. Speak to your attorney and CPA first.


+1. If your rentals are claiming a loss on paper, that will hurt your calculated income to qualify for future mortgages.

Mortgage Loan Officer licensed in CA & AZ


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