All Forum Posts by: Dave Hurt

@Stephanie Medellin yes we did try all of that...not sure what gives!  It is easier for me to get a $650k loan to open a new restaurant than it is to refinance a rental property for $67.5k (that I bought for cash)!!

Thank you for the input @Albert Bui - I suppose moving forward now I know to ask up front about a lender's attitude towards bonus depreciation add backs!  Getting a "That shouldn't be an issue" from a mortgage broker apparently isn't enough!

@Stephanie Medellin I asked about that and basically what I was told was now that they've seen it, they can't ignore it!

Thanks @Bill Tilt.  

@Brent Coombs unfortunately (or fortunately - depending on the perspective!) I am only increasing the momentum of new restaurant openings and have recently added another brand to my portfolio so we will have multiple units opening next year...the depreciation I take on these will continue so deferring until next year for the refinance will be of little benefit.  This year I've already had one new store opening, and have a second under construction at the moment that may be completed before FY16 ends as well...

Also, the purpose of buying all cash up front was to be able to close quickly and then refinance into long-term debt so I could free up the capital and purchase again...so now my real estate business is at a bit of a stand still...

Thank you @Jeremy Pakalka and @Charlie Fitzgerald.  I was working with a mortgage broker I've used in the past and she was confident this refi would close no problem - she was just as shocked as I am.  As of yet, she hasn't gotten back to me with a different lender.

@Stephanie Medellin that is what I was thinking as well and I looked at the guidelines with bothmy broker and CPA and we all agreed...but basically the depreciation is denoted on my K-1 as an "ordinary loss" because there isn't a specific line item for depreciation on the K-1. To clear this up, my CPA provided the underwriters with my annual P&L for the LLC that does show the depreciation...they still will not add the depreciation back.

Thanks @Justin F. the lender is Flagstar Bank.  My office is actually in the same building as Community1 so I will swing by there today!

Hello folks! 

I posted about this in the PRO forum and didn't get much response so I figured I'd post it here as well.  

I was just denied a conventional cash-out refinance on a rental property that I acquired all-cash and almost meets the 2% rule!

I own a business and I have a W-2 job.  My business owns and operates restaurants.  In 2015 we opened a new restaurant, so my CPA took advantage of bonus depreciation on the new restaurant to reduce my tax burden.  As we all know, depreciation on assets such as real estate, restaurant equipment, etc. is a wonderful tax strategy, and one of the many reasons it is beneficial to invest in these asset classes.

Now, here's the frustrating part - the underwriters are counting the bonus depreciation as a cash loss against my W-2 income and are saying I don't have enough income for the loan (the W-2 income from my 'day job' is six figures, and the only personal debt I have is my primary residence and a vehicle!!!).  

My CPA  put together a letter describing that the 'loss' was depreciation and that it was not an actual cash loss that should flow through to my income, and that I have more than enough income for this loan.  I even provided my company's P&L and balance sheet to show that we have strong financials.  The underwriters won't budge.

This is incredibly frustrating as it is a property that I'm into for only 55k, the bank appraised it at 90k, and I have it leased out on a yearly lease for $900/month!  This is the safest loan a bank could possibly make!  I have a high-paying stable job, strong credit, and low personal debt...I just also happen to own a business that took a large bonus depreciation for FY15 (NOT A CASH LOSS!).

Does anyone recommend a lender who can properly underwrite this?  I don't want to keep paying for appraisals and getting denied because underwriters are counting my business depreciation against my W-2 income!

Thank you and sorry for the long post!

Hi @Ryan Tatro sorry for the delayed response.  I have only been in communication with the mortgage broker who has relayed everything back and forth.  Do you recommend any lenders for this situation?

Hi @Ryan Tatro thank you for the input.  The lender is Flagstar Bank - I'm not sure if they underwrite internally or use a 3rd party.  I've owned the property for 6 months and it has been rented for 2.  My CPA has encountered this before and he says usually he puts together a letter to the underwriter and they add back the bonus depreciation to the income to qualify the person, but this particular bank isn't budging.  

I even provided my P&L and balance sheet so they can see that my companies are profitable...but I'm not sure they even looked at them!

Hello everyone,

I am dealing with quite a frustrating situation right now that I was hoping to get some insight on.  I am trying to do a cash out refi on a rental I purchased all cash, was told I was clear to close, and then the bank called back and said they could not approve the loan.  Basically, I have a W-2 job and also own a business (restaurants) and they are subtracting my business depreciation from my W-2 income saying I don't have enough income for the note.  

My CPA took advantage of depreciation bonus on a new restaurant we opened last year to reduce my tax burden and basically the underwriters are saying it is flowing through as a loss that wipes out my W-2 income so I technically don't have enough income for the loan.

I had my CPA draft a letter outlining that in fact the loss was not real, but was bonus depreciation, and that I have more than sufficient income.  The underwriters won't budge.

This is incredibly frustrating as I have strong credit, low debt, a W2 job that pays 6-figures, a business that does millions in sales per year (I take no income from the business - everything gets put towards opening new stores), and I have 100% equity in the property paid all cash!  What's more, it is currently rented on a year-long lease at almost the 2% rule!!  If there were ever a low-risk loan this is it.

Here are the numbers for the deal that I have ultimately been rejected from: 

55k total acquisition (purchase + reno)

90k bank appraisal

67.5k cash out refinance (75% LTV 30 year fixed)

Property is currently rented at $900/mo on year long lease!

What should I do???  I don't want to keep going from bank to bank, spending money on appraisals, just to be rejected in the same manner.

Thank you to everyone who came out last night!  I couldn't think of a better way to round out the holiday weekend than discussing real estate over drinks with so many like-minded people.  Already looking forward to the next one, folks!