Best Loans to use to scale

[Thomas Bullock]

My friend and I are both veterans. We invested in a 3 family property about a year ago now. 100% of my friends VA loan was used, however, I am still on the loan because it was the only way we could get approved for the loan. I still have 100% of my VA loan.

It’s my understanding that since we’re both listed in the loan, we both carry that debt on our debt to income ratio. Do we both show for 100% of the loan debt? Can we each only claim 50% of the rental income to offset that loan debt? Did we screw ourselves in a sense in terms of investing towards the next property. Tax season is coming up and we want to start investing in our next property. What is the best way to claim our taxes in order for both of us to get approved for another property in 2023. Ideally we both want to get a multi family in 2023 so we can start expanding faster.

Like I said, I have my VA loan still and my friend can use FHA.

We both make average yearly salary. We have a joint bank account with a good amount saved in there that we use for all expenses and income.

Would opening an LLC and transferring the property into it help avoid this complications? Or, would the debts still show individually for my partner and I?

Very loaded questions. As you can tell I'm very new to this game. I've tried researching on my own but haven't found clear answers. Any tips will help!

Thanks!

[Stephanie P.]

@Thomas Bullock

There's a lot to unpack here. Just saying, "hard money and DSCR" really misses the crux of the questions.

My friend and I are both veterans. We invested in a 3 family property about a year ago now. 100% of my friends VA loan was used, however, I am still on the loan because it was the only way we could get approved for the loan. I still have 100% of my VA loan.

Point 1:  So you and your friend have an owner occupied property where you are joint owners and he used his VA loan and your income to qualify.

It’s my understanding that since we’re both listed in the loan, we both carry that debt on our debt to income ratio. Do we both show for 100% of the loan debt? Can we each only claim 50% of the rental income to offset that loan debt? Did we screw ourselves in a sense in terms of investing towards the next property. Tax season is coming up and we want to start investing in our next property. What is the best way to claim our taxes in order for both of us to get approved for another property in 2023. Ideally we both want to get a multi family in 2023 so we can start expanding faster.

Point 2:  Part of the answer to the question of claiming the rental income and the debt is how and who pays the monthly payment.  I've linked to the Fannie Mae seller's guide for the long drawn out answer but in reality, you both wouldn't be hit for the full payment just like you don't both get the full benefit of the income.  https://selling-guide.fanniema...

We both make average yearly salary. We have a joint bank account with a good amount saved in there that we use for all expenses and income.  Would opening an LLC and transferring the property into it help avoid this complications? Or, would the debts still show individually for my partner and I?

Point 3:  No, transferring the property to an LLC would open a can of worms unless you refinanced out of the VA loan and into a DSCR loan.  Even then the mortgage debt for a "financed property" would count against your total maximum of financed properties through Fannie Mae.

You need to sit down with good mortgage broker that understands VA loans and how VA, FHA, conventional and then finally DSCR loans can help you structure your portfolio. You're on your way. The next purchase should be another property using VA (remember it has to be owner occupied).

Stephanie