DTI after lease agreement from an LLC?

Question

If I have a property that my spouse owns ( I am not on the deed), am I able to lease that property under an LLC that is owned by my holding company? LLC would conduct STR out of the property. For qualifying for future conventional mortgages would a lender accept 75% of this lease it offset his DTI or would they consider it as a full liability unless it had more than 2 years of STR history?

Nick Belsky · Answer

Account Closed

Short Term or Long Term doesn't matter.  How do you report it on your taxes?  That's what determines the amount of income to qualify for conventional.  If you've reported the income for less than 2 years, they will want to know if it is still active or not.  If yes, they will extrapolate it.  If no, then they ignore it.

So if you claim $20,000 in STR income. Then look at your overall Schedule E (or C, 1065. 1120, etc... depending on how you report) to reduce your expenses.  So if your expenses are $10,000, you have an income of $10,000, right?  Nope.  Now multiply the $10,000 by 75%.  Now you are at $7,500 per year of income from your STR.  Many folks have nearly equal expenses to income to have little to no tax liability.  That's great!.. for taxes.  It erodes your qualifying income for a conventional/FHA/VA mortgage.

This is a primary reason why so many investors look to Non-QM and private loans.  This is NOT a problem for these loans.  These loans were created specifically for investors who run into this problem among other Fannie/Freddie guidelines.

In regards to your LLC renting from your husband and running a STR, you may want to consult with a CPA, Real Estate Attorney, or even a title agent who is familiar with the state laws where the property is located.  In community states, this would not likely be allowed if you two are married, but I am not a CPA nor an attorney!

Cheers!

Brandon Warren · Answer

Kristen - Did you ever figure out a solution for this? I'm in a similar boat and had the same idea.

Zeona McIntyre · Answer

I am not a lender but I am generally pretty familiar. In my experience, a lender that understands investments will accept a lease immediately and give you 75% of the rent off of the DTI.

You can rent it in your LLCs name. They are not digging that deep into who owns what company.