Trouble getting a HELOC becasue of DTI (lenders using tax forms)

[Andrew P.]

As the title says, I am struggling to get a HELOC right now. I have 3 properties, all cash flowing really well (yes, I am including vacancy, repairs, and funding a CAPEX account). However, as a result, of my tax forms the past few years, the properties are showing a loss. Underwriters seem to run what I think is a dumb formula because according to the my accounts, the buildings are doing really well.

Depreciating has reduced much of the income and probably just as big, I have put a lot of money back into my buildings to improve cosmetics and efficiency while modernizing them somewhat. As a result, I wrote off these expenses, with the knowledge that it pays for itself over a few years because of the increased rent. Anyways, this is a long way of showing that I am looking for advice, perhaps lenders who are willing to look past what the property income is on paper and hear out the narrative I just explained advice. 

One of the many advantages of real estate is its tax advantages. However, it seems like these advantages are better when you are starting off but when you accumulate more properties and are looking for lines of credit, refinance, or loans on new buildings, those tax advantages come back to bite you by making your DTI ratio to high for many banks. What does everyone do in these situations to continue their growth?

Thanks

[Dave Skow]

@Andrew P. 1) as 2022 is almost here - consider completing and filing the 2021 tax returns asap and consider having the schedule E for the rental income show as much of a positive net income as possible ...this might increase your tax exposure for the year but if the result is that you will be able to line up a HELOC on your primary property , it could be worth it

2) a traditional cash out refinance will have the same issue of using the tax returns for the qualifying ratios - the LTV ( loan to value ) for a OO triplex isnt very high

3) recent FED announcement - 3 seperate .25% increases expected for fed rate in 2022 - this means HELOC / prime rate will increase by the same amount when these increases occur