Lets hear from the self employed

[Rich Hupper]

On this forum ive noticed a good chunk of people have w2 income who are investing for the first time or becoming seasoned investors almost ready to give up their w2 job.

It seems like it is easier to get started in the rei world if you have w2 income. 

Can any of the 100% self employed people share their experiences? What lenders gave you loans?. What challanges did you face applying for loans? were you a single member llc or sole proprietor or some other entity? What other creative strategies got you into your first house or investment property?

[Chris Mason]

Originally posted by @Rich Hupper:

@Natalie Kolodij do you know what lenders look for on a self employed person's tax return to make their calculations? Is it adjusted gross income, net income, or gross income, or something else I am missing? 

Is it true that paying more taxes translates into more borrowing power?

 It's none of that. You can sneak preview for yourself here. There is a lot not covered at that link, that's just to give you an idea. One thing that you will not see at that link is the presumption that it's the same source of income over those couple of years. Meaning if "ABC Carpet Cleaning" had income in 2016 and then closed, and "XYZ Car Wash" opened in 2017, you don't get to average or mix those two -- "XYZ Car Wash" needs to be open for two tax years, "ABC Carpet Cleaning" will be calculated at $0 per year.

It's also the case that restructuring your business can in some cases reset that two year clock. Who is to say that "XYZ Car Wash" the Schedule C sole proprietorship (2016 tax returns) is the same business as "XYZ Car Wash LLC" (2017 tax returns)? It's "underwriter discretion" on that one, and "underwriter discretion" is a bad place to be, since you as the borrower have zero control over if the underwriter's milk went bad ruining her breakfast that day, and you (presumably) don't want a half million dollar real estate transaction dependent on the expiration date on a $4 carton of milk.

This is part of why CPAs and mortgage lenders are constantly at odds with each other, since great advice from a CPA focused on saving you tax dollars is often simultaneously horrible advice if you're goal is to buy a house next year and don't plan to pay cash.