W2 vs. 1099 and Issues in Acquiring Financing

[Eric Barnett]

Hello, 

My questions arises over a decision I have to leave my stable W2 job and go back to being a consultant as a 1099 contractor.  I will make about 20-30k more as a contractor with the ability to use my newly acquired real estate license as a means to earn additional income since I will have the freedom to show houses when needed and not be tied to a desk from 8-5.  The freedom will give me more time to analyze deals as they come up in my market (central TX).  

A few questions I have are as follows:

- Will financing for investment SFH or Multi Family units be that much more difficult as a contractor making 130-170k/annually as opposed to a W2 employee?  

- What is your opinion on having freedom to pursue side jobs and/or real estate investing as a contractor who works from home (minus a few days a month on project location) compared to a typical 8-5 that requires 2 weeks of travel a month.

Additional information to consider is:

- My fiance who lives with me is a teacher with stable income and benefits and currently has no plans of leaving to pursue real estate full time as she would prefer to teach and do real estate on the side with me.

- Our PR would provide us with about 65-70k in equity.

- I specialize in both renewable and non-renewable energy land/development work which can be fical markets but I have not missed a day of work since graduating in 2010.

I am new to bigger pockets but have been listening to real estate podcasts the past few months along with studying referenced books/blogs.  I welcome any advice or opinions of what all of you would do in this position given that if you are like me you hate sitting in an office, especially if there are better ways to manage time and energy towards financial goals.

Thanks for the help.

-Eric

[Chris Mason]

1099 income is self employment, meaning your claimed income will be ignored by any traditional mortgage lender (no, issuing yourself paystubs or showing bank statements will not work), and we are forced to just go off of what your tax returns say. We do a wonky calculation that results in us using some number above your net, and below your gross.

Sometimes Freddie Mac will only require one year of tax returns be evaluated, which means you'd be on hold until you file your 2016 tax returns in early 2017.

Fannie Mae generally requires two years of tax returns, putting you effectively on hold until early 2018.

Have your go-to lender run a made up 123 main st scenario with 1099 income, and your credit report, through Freddie's AUS. See if it'll go for one year given your credit, and then keep your credit in good shape. That'll let you know how long you will be on hold for, in terms of traditional soft money mortgages.