All Forum Posts by: Account Closed

So long story short, myself and another person co-own a property 50/50.  We hold the property in our individual names.  We have one property and after getting a rather large CPA bill ($1600+) for the 1065 Partnership Returns and K-1 forms (along with a bit, not a lot, of correspondence on phone and email about quickbooks, which we use).  I talked to my CPA about electing this year to be the final year to file these Partnership returns and K-1s and just move forward by splitting everything on our Schedule E's between the two co-owners.  He told me that we can't do that and that it is a partnership.

In looking at the IRS definitions it states:

A partnership is the relationship between two or more persons who join to carry on a trade or business, with each person contributing money, property, labor, or skill and each expecting to share in the profits and losses of the business whether or not a formal partnership agreement is made.

The term "partnership" includes a limited partnership, syndicate, group, pool, joint venture, or other unincorporated organization, through or by which any business, financial operation, or venture is carried on, that is not, within the meaning of the regulations under section 7701, a corporation, trust, estate, or sole proprietorship.

A joint undertaking merely to share expenses is not a partnership. Mere co-ownership of property that is maintained and leased or rented is not a partnership. However, if the co-owners provide services to the tenants, a partnership exists.

It appears to me that my CPA may be wrong on this.  The main reason I care is I don't want to have to spend $1000 or more every year on the tax prep when all I probably need to do is file on the Schedule E (especially with just one or two properties).  What do you all think? 

I think you should always have a lease unless you are doing an AirBNB thing, which they have their own standards.  The lease protects you, and it informs the tenant of what is expected from them.  Can they have a pet?  Can they smoke? Are guests allowed to stay over?  For how long?  The only way to make sure they understand and are liable to uphold the standards needed to live in your property is if they have it in writing and sign it. 

I would go ahead and get a lease in place.

Just to update, the first duplex has been purchased, with the help of @Zack Karp.  I can't recommend him highly enough, him and his team were able to answer any questions I had and did so promptly. 

Anyway, finally got it listed and can't wait to start the journey as a landlord and house-hacker.

Excellent advice everyone.  Thanks for your help. I will report back with what ends up happening.

@Michael Cohen no it is a typical 30 year conventional loan that would be in the 200-300k range.

Hello all,

I've gone to a few banks in Indianapolis to try and qualify for a conventional loan, and have been repeatedly shot down. The real sticking point is that I have a lot of student loans, however they are on IBR and will be for the future. The ones I have gone to are sticking to the 1% of the loan amount (which is what FHA is, which I understand). However, Fannie Mae guidelines instituted in late April 2017 state that:

Student Loan Payment Calculation We are simplifying the options available to calculate the monthly payment amount for student loans. The resulting policy will be easier for lenders to apply, and may result in a lower qualifying payment for borrowers with student loans. If a payment amount is provided on the credit report, that amount can be used for qualifying purposes. If the credit report does not identify a payment amount (or reflects $0), the lender can use either 1% of the outstanding student loan balance, or a calculated payment that will fully amortize the loan based on the documented loan repayment terms. The current Desktop Underwriter® (DU®) message issued when an installment debt on the loan application does not include a monthly payment will be updated in a future release to reflect this new policy. Until then, lenders may disregard the statement in the message specifying the previous policy and follow the requirements in the Selling Guide. Effective Date This policy change is effective immediately.

This should make it so that IBR payments that show up on the CBR can be used. This makes the payments very manageable for us, where they are around $500 per month. In talking with the local credit union mortgage guy, he says that he realizes that is what the regulation says, however, the investors they sell the loans to don't currently want them to calculate that way. So in short, does anyone know of a local bank who will count the IBR payment on the credit report as opposed to going off the 1% rule?

More great information.  Thanks, Chris! You are a real asset to these forums.

 I see. So basically once we plan on making the move to another property, that new one will be owner occupied math, and the one we are moving from will have non-owner occupied math (even the unit we are living in until we move to the new property).  That is very helpful information. Looks like once we get in and qualify for a first property, the financing won't be hard for these first ten or so, but coming up with enough money for future down payments could be the issue.  Thanks Chris, that was very helpful.

I am going to be looking at duplexes within the month or so, but in looking at some of the fannie mae overlays for conventional loans, it appears that the income from the other side gets completely added to my income, however the whole PITIA is considered a debt obligation and affects the DTI negatively. The relevant section is here:

The amount of monthly qualifying rental income (or loss) that is considered as part of the borrower's total monthly income (or loss) — and its treatment in the calculation of the borrower's total debt-to-income ratio — varies depending on whether the borrower occupies the rental property as his or her principal residence.

If the rental income relates to the borrower’s principal residence:

• The monthly qualifying rental income (as defined above) must be added to the borrower’s total monthly income. (The income is not netted against the PITIA of the property.)
• The full amount of the mortgage payment (PITIA) must be included in the borrower’s total monthly obligations when calculating the debt-to-income ratio.

So I guess I am asking if there is a way around this, or if I am reading it wrong, or what other strategies you all use so that you can qualify for future mortgages? From the looks of it, I would have to move into an apartment so that it is no longer my "permanent residence" in order to make my DTI better to get more loans.

It depends how much work you are willing to do for your properties, if your job is flexible in its hours, and the proximity of the properties to one another among other things.  If they are least somewhat close and you work a normalish 40 hour per week job, I don't see having a hard time with the first three/four, possibly more.  The big issue would be mowing, which you would likely have to do every 7 to 10 days.