Successful real estate investors typically start out with one property and soon realize they can do one more. Then another. And at some point the investor discovers that they can quit their current job and live comfortably off the rental income while saving for retirement and watch their assets self employed borrowerappreciate. They’re self-employed now.

If you’re self-employed or thinking about making the change, it’s important to know how banks look at you when you’re self-employed compared to bringing home a regular pay check on the 1st and 15th of each month.

A self-employed borrower must first have at least two years’ worth of self-employment documented by copies of signed federal income tax returns. If you’ve only 18 months past quitting your old job not only will you have to wait you’ll also have to wait until you file your next round of income tax returns in order to fulfill the two year requirement.

Self-employment income is usually sporadic. At least there’s not a regular pay day. When evaluating your returns, the mortgage company will average the two years of income then divide by 24 to get a monthly figure. Remember, this is your net income, not the income before you subtract business expenses. If the income is consistent from year to year, all is well. If the income falls by more than 10 percent from one year to the next, your lender may need a written explanation regarding the drop in income. Anything more than that and the loan may be declined altogether.

The self-employed real estate investor is encouraged to take as many legitimate business deductions as possible but on occasion an investor will find that too many deductions were taken, reducing the amount of qualifying income. Being self-employed isn’t any more difficult to obtain financing, you just need to know the rules before you take the leap.