Cost Seg study and home loan

mobile home university
1

Hi everyone! Happy Friday. I am doing a cost seg study which is great but it had an unintended impact on our taxes. We are also buying a personal residence and our lender is now underwriting the property at several thousand a moth in negative cash flow even though the property is cash flow positive. This lowers our own personal income for qualification purposes. Has anyone else encountered this and if so do you have a lender who understands this and can underwrite to the issue more accurately? Thanks! Dave

2

Dave,
I have dealt with this issue for YEARS. Most lenders/underwriters are accustomed to the standard 1099/W-2 employee. They can underwrite the deal in a few minutes. When we apply, we have some complicated tax items, such as deprecation expense. Depreciation expense can make a property look like its cash flow is negative. If you are experiencing this, you need to point out to the underwriter/loan officer that depreciation expense is added back to the property’s income.

If you are going with a Fannie Mae loan, bring forms 1039 and 1084 to their attention.
Right on the Form, it says to add back depreciation expense.

1039.pdf (779.9 KB)
Form 1084.pdf (119.1 KB)

You can also ask your LO if you qualify for a business bank statements loan. They can use 12 months of business bank statements. They will average the monthly gross deposits, subtract a 50% expense ratio, and use that number as your income.

PM me if you want to reach out to my guy.

Anthony

3 Likes
3

This is SOOOO incredibly helpful. I thought I was going crazy. I know right, if they add straight line depreciation back in why not cost seg. I will forward along this info and I am glad to hear that I am not alone in this. Have a wonderful weekend! Dave

1 Like
4

Have seen this also as some banks only permit 75% of gross rental receipts, less all expenses and add back depreciation, which can make cashflow look negative. Particularly annoying if you have a park approaching 100% TOH, where 75% seems like nonsense, because you’re gonna get paid or get the home…. Good luck.