Should I Go Back To W-2? Or Stick With 1099?

Question

Hello , I’m new to real estate and looking to close on my first property by 2022 . Here’s my question .. Should I get back in the workforce as a W-2 employee ? Or should I continue working as a courier where I can accumulate cash faster for my first property .

I previously was let go due to Covid about 4 months ago working as a plumber W-2 making a salary of about 50k after 3 years with this company. Started this delivery job making a salary of about 70k (1099). I’ve had income from this delivery job in the past while working as a plumber during my free time .

So far I have about 25k saved up towards my first property .

Benjamin Aaker · Answer

Go with the 1099. You've proven by now that you can make it independently. Remember to save at least 10%. Others on the thread have said the rest.

Nicole Heasley Beitenman · Answer

I'd take the extra $25k/year with a 1099 job all day any day. Network with private lenders to float you until you hit the 2 year mark. Start meeting lenders now and build a list of those who work well with 1099's so you know who to go to when the 2-year mark is up. A W2 job can actually set you back in terms of building wealth; if you've escaped the clutches of the W2 world, don't look back!

Jazeel Collins · Answer

@Kevin Romines Thanks, really appreciate the feedback . I have more than 2 consecutive years working as a w-2 employee but I’ve been out for about 4 months now . Does it have to be 24 months conservatively ? Or is there room for non employment as in my case ?

Kevin Romines · Answer

If you are referring to going back to W2 because you have more than 24 months in that industry. Yes, you could go back to W2 in that same industry and you could close the loan with your 1st 30 days worth of pay stubs. so theoretically, if you went back W2 in the same industry, you could close a loan within 30 days of having started the new job.

If you stay 1099, you will have to wait until you have 2 years as 1099 and have the proper documents (tax returns & P&L's) to prove your gross income after expenses. so that would take you to late 2022 or early 2023.

Kevin Romines · Answer

1099 Income being considered self employed income, must be averaged over a 24 month period. They will determine your income by looking at your tax return and boiling down your annual income after all expenses and any add backs to income that can be determined, such as certain depreciation items?

They will do that for both of the last two years tax returns and you will also have to provide a year to date P&L. If the P&L is not prepared by your CPA, you will need 3 month business bank statements to prove what the P&L is saying.

So with that in mind, you can make your best judgment based on looking at what you tax return is saying your income is after all expenses. Also, on a W2 income, you have to have 2 years in the industry on most loans except FHA who just wants to see that you have a 2 year work history, it doesn't have to all be in the same industry.

So with the correct info. in front of you, you can make your best decision as to the correct route to go.

I hope this helps?

Jazeel Collins · Answer

Thanks very much appreciated. That I’ll do .

J Zev J. · Answer

@Jazeel Collins - It's much easier for a W-2 earner to get a loan than a 1099 earner. With that said, if you're making substantially more (even after self employment taxes) as a 1099 earner, then it might be worth it to stay a 1099. You can reach out to a credit union and explain your situation and they'll let you know their lending criteria which could help guide you. Also, it wouldn't hurt to talk to some mortgage brokers to get their advice based on your specific situation.

Jazeel Collins · Answer

@Nicole Heasley Thanks a lot for the feedback . That was a feeling of accomplishment. Being able to leave the w-2 world and be able build more capital while having more freedom to Pursue real estate . But now I’m trying to figure out is it worth the wait ? Can you explain a little more when you say for private lenders to float me ?

Jazeel Collins · Answer

@Kevin Romines Thanks . I understand now .

Jazeel Collins · Answer

@Jazeel Collins I’m thinking about loans and working 1099 jobs . I’ve heard that credit unions are better options for my current situation which I am a member of two  . I haven’t done any pre approvals just yet. Wanted to get more knowledge and set myself up for a higher chance of success before approaching the banks . Thank you .

Should I Go Back To W-2? Or Stick With 1099?

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