If your guy is preapproved for a loan, his bank most likely isn't going to fund the deal with income like this for the reason that you mentioned, free cash doesn't even cover debt service.

I see funneling income in this way as a form of paying yourself first and the bank last.

I had a similar question:  https://www.biggerpockets.com/forums/311/topics/588871-az-rental-friendly-bank-for-heloan?

We currently own and manage 3 other rentals but out debt to income is high so conventional/bank loans are not currently an option for us.

Once it’s seasoned after 6 months, refinance through a local bank or credit union.Now, I am a fairly new investor with my real estate license and a few units under my belt but I recently left a regular 9-5 and want to see what my options are in order to refi on the property with no W2 income.

The amount to bring current is an estimate until you get in writing how much is needed from the bank including legal costs and unpaid taxes.

A bank is very strict and the deal has to fit in this “tiny little square box “ but land contracts allow for infinite options with less down and sometimes no interest at all .just depends on how bad they want to sell

We've discovered one lender, "Paradise Bank" who does offer this.  

@Daulton H.Get QBs -easier for accountants to do your taxes, better if you get audited, better if bank wants financials, etc.

If they buy a judgment, they can go directly after the debtors bank accounts etc...