All Forum Posts by: Yoni R.

@Yoni R.
        "I wasn't clear about the main issue. The main issue is the obligation of the mortgage is sitting on my personal tax return when in fact it is not my obligation."

OK now I understand what you are saying better. Are they counting the debt against you but not counting the income of the building? I think the answer is still to find another lender. 

 Can you show 12 payments made by the business account?

 Generally speaking, there are 3 things to look at:

1. Who's name is the property titled in? You said your LLC - Good

2. Who gets the income? You said it flows to your schedule E - not ideal

3. Who makes the payment? Do you have a business account that receives the rent and pays all of the bills including the mortgage? - if the answer is yes you may have a leg to stand on to make the case that at the very least you can offset the mortgage payment meaning it won't be a hit for negative income in your DTI but you also don't get any income benefits from the property; which from what I can tell it's not cash flowing.

Please note, you need at least 12 months of payment history showing the mortgage is being paid from your business account.

Happy to chat if you'd like to discuss further.

It's not.

The processor or underwriter who told you they would need to see the K-1 stopped there so that you, the customer, could feel that you are right. I'll continue where they left off: 

As soon as the underwriter saw the K-1 showing >25% ownership, they'd ask for those business tax returns, which would have the exact same information on them that your Sch E has now, and you'd be back to square 1. 

The problem here, bottom line, is that the property is not cashflow positive according to what you reported to the IRS. Which tax form you use would not change that. The Schedule E equivalents for S-Corps (including LLCs that elect to be taxed as an S-Corp), C-Corps, trusts, and the rest, all have the same information. 

When a rental property is cashflow positive according to Sch E (or the equivalent), the mortgage is omitted. Or, more precisely, it's subtracted from the gross income along with other expenses (plus the depreciation add-back, etc), and any remaining positive number is included as income (with nothing listed as a debt/liability). Any negative number is included as a debt. 

@Yoni R. it is not really weird and it is not a "technicality"  It is the normal way things are taxed and reported in your situation. 

Sadly some lessons are hard to learn. The fact is banks often have standardized rules and those rules don't always seem fair or make sense. When you chose how to be taxed there are often advantages and sometimes disadvantages.  Minimizing your income on your tax return is good for paying less taxes but it is bad for looking like you make enough money to repay a loan. It is a trade off we all deal with. 

Some banks and lenders will look at it differently. If you are not a guarantor for the loan they may not count it. (How did you get a loan your did not personally guarantee? I'd like to get those!) Also if you are showing a loss due to depreciation some loan underwriters will adjust for that. You just have to keep looking for the type of lender that will work with you. 

Generally you want a relationship lender. A lender that gets to know you and your situation and is willing to consider your unique situation. This would usually be a smaller local bank. Big banks tend to be more transactional and box checkers with firm criteria. Good luck.

Just to confirm, the multifamily mortgage does not show up on your personal credit report, correct?