Self Employed borrowers tend to have complicated structures and accounts, and because they legitimately incur expenses in the course of business which can be written off of their income it takes a clever approach to understand their tax returns and help them work out what they can borrow
Simple rules you can follow if you’re an ambitious self employed person wanting to build a property portfolio look like this:
Minimise your write off’s
Keep your expenses to a minimum, obviously the more income you have the more you could potentially borrow.
Both personally and in the business, reduce unnecessary limits, if you can avoid borrowing by saving for necessary items that's all the better.
Understand your financials
Can you read your tax returns and balance sheet? Do you understand them? Ask your accountant to show you through them, having a good understanding of your business allows you to plan & make better decisions.
Don’t leave your tax returns for years – its either money in the bank that you’re missing or a nasty bill piling up. Lenders wont love out of date financials & you won't love scrambling and begging favours of your accountant if you're in a hurry to get them done.
Get on top of your invoicing
Its simple to leave cash on the table if you’re not on top of your invoicing & if you’re consistently late your cash flow will blow out, not to mention the unexpected bill your client receives and the awkward phone call you'll have to make to chase these outstandings. Cash flow is King as we all know. And think of the interest that you’re missing out on while you’ve paid your expenses on the other side.
If bookwork is the last thing you want to do at the end of the day, or it just isn't your forte consider hiring in the service, its surprisingly economic.
A profitable business is good for you
A profitable business is great for you – it means you’re making money, it means you can borrow money & it also means your business will have value when you’re ready to sell.
Obviously, its important to have a business that runs so you wont forgo a necessary expense or liability that will allow you to increase your income, however, these should provide at least food for thought for your future property ambitions.
The unwritten 7th rule is do see a broker, lenders vary widely in how they look at your returns and what income, expenses and add backs they allow - and therefore how much you could borrow. I put this in the category of "why you have almost no chance of being approved if you walk in the door of your local branch" Don't get a no from a bank and be disheartened when working with one of us is so easy and we're very much on top of all the variety of rules.
See the article in the Western Weekender here: