Posted by youngsterz (UT) on February 20, 2002 at 09:21:52:
Showing income from your business is only to your advantage if you actually want to show some income for loan qualifications! If you want to do what you can to get the loan, I would definitely say yes. I also think it depends on how your loan officer wants to structure it. I have a great officer at Wells Fargo who understands and thrives on creative finance. She isn’t just filling out paperwork. And it’s not “Enronitis”, because they base it off of the Schedule E from your tax return, and current lease contracts. That serves the same purpose as a regular pay stub from a regular job.
I recently quit my “regular” job to be a full time investor. I thought I would have to do a stated income loan from now on, but I got my last loan, two weeks ago, showing my income from my job as a full-time investor, and as the president/principal/managing partner of my LLC. Now I’m charged to go find the next property and do it again!
Other income/tax note (with disclaimer: I’m not a tax accountant, so confirm this with one): The income from an LLC is already being documented in the Schedule E. If you plan to be a full time investor, and make more money from buy/sell than you do from owning/managing your own properties, then you should consider incorporating as an S corp/sub S corp/Professional Corporation. There are greater tax advantages that way. Consult your accountant.
I have an LLC for my own keeper properties, and will be forming another LLC soon for additional properties (risk diversification). But, I also recently got my real estate license as well, to aid me in my own real estate investing, as well as make a commission on sales to other investors of properties that don’t fit me, but may fit them. (I focus on investment properties). I incorporated for my real estate business (as a Professional Corporation because of my status as a licensed professional) and the advantage is that you are able to declare a portion of your income as salary, subject to the 15.3% self employment tax, and declare the rest as a dividend of the company, which is only counted towards your Gross Income. And if you have a ton of depreciation expense from your properties, then you should be well sheltered for your Gross Income, and should be able to avoid most or all of the taxes on that declared income.
That beats the heck out of paying the 15.3% self employment tax!
This isn’t illegal, or “Enronitis”. It’s called the U.S. Tax Code, and any serious investor has to learn how to play the game, by the rules that have been set by the good old government. Remember: the tax code has mostly been set to benefit the rich. So use the code to your legal and constitutionally guaranteed benefit, and become one of the Good Old Rich Boys!
God Bless America! (Whew! I’ve been watching too much of the Olympics. Gets me all patriotic. . . .)