Competitive Long Term Lending for Self-Employed Investors: BRRRR?

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Competitive Long Term Lending for Self-Employed Investors: BRRRR?

Daniel PorterPro Member
Rental Property Investor · Dallas, TX · Member since 2015 · 94 posts · 20 votes

howdy, from dallas tx. 

i'm a full time professional musician, and my income fluctuates seasonally, as well as being all 1099s.  i've been approved for around $150k on a bank statement loan at 8%, 30yrs fixed, with a minimum loan amount of $100k. so i'm stuck between houses around $115-$150. i'm leaning towards the lower end of that. My strategy is to rent out room by room, which can usually net more for the house in larger 4-6 room houses. i've been searching for my first house hack for 6 months now. i've had three properties under contract, which have all fallen through at some point or another. one was about 8 weeks. i've put in quite a few offers on houses, but usually lose to cash offers.

my problem is, the houses need to qualify for the conventional lending standards, and almost nothing will qualify in my price range. i lost that 8 week contract because the siding was damaged. i had about $1000 in that deal, just to get a bad appraisal that the seller wouldn't budge on. the other problem is, at 8% financing, that pretty much eats up quite a bit of the cash flow, and i'm just trying to cover the PITI every month. so of the few deals i can make offers on according to the numbers, i've gotta always negotiate, and its just a weak offer that has led me to my 0/3 deal score. haha.

all this to say, would it be better to try to BRRRR? it would obviously give me an edge as a buyer, which i am more than ready for. but i'm also a first time buyer and am absolutely clueless as to the details of it. i understand the basics of brrrr, but my biggest issue is my self employed income. i made about $5000 on paper last year after taking every possible legal deduction and sheltering as much as i could in my S Corp. i don't know if any lenders will do a cash out refi for me. even if they do, what's the point of refinancing if my interest rate is 8%?! obviously id have to, to pay off the hard money, but there's gotta be a better way to do this. Are there lenders who will offer long term financing for self employed ppl? espeecially if i can show a current Debt Service Coverage ratio of 1.25? i have been waiting to get into the real estate game for so long, and this is my current problem i'm trying to solve.

any and all help would be appreciated! 

all the best, 

dan

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  • Ron Gallagher
    Investor · Washington, DC · Member since 2017 · 198 posts · 323 votes
    7y

    Sorry to crush your dreams but you can't really BRRRR with no money. You need access to capital in the form of a HELOC or a hard money lender to BRRRR (and the HML is going to have a higher interest rate then 8%)... what you should do is look for a multifamily property, with the idea that you are going to live in one unit and rent out the others, that way the lender can count 75% of the rental income of the other units toward your income to qualify. Buying a single family house with 18 bedrooms and renting out by the room isn't going to work because lenders won't count the "boarder income" from your roommates toward your income to qualify. But buying a 2-4 unit property will allow you to search beyond that $150k cap you are stuck in.

    Also, I was self employed for years and I would never qualify for a loan because, like you, I made sure I took every expense possible and as far as the IRS was concerned I made no money.  That's a great strategy if you don't want to pay taxes, but while you are in your "acquisition phase" you should suck it up, and not write off every expense, and actually pay taxes for a few years so you can qualify for low interest rate mortgages.  Then after you buy all the properties you want then you can end your "acquisition phase" and you can go back to cooking your books and writing off all your expenses and never pay taxes again.

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  • Caleb Jordan
    Lender · Arlington, TX · Member since 2018 · 465 posts · 184 votes
    7y
    Originally posted by @Daniel Porter:

    howdy, from dallas tx. 

    i'm a full time professional musician, and my income fluctuates seasonally, as well as being all 1099s.  i've been approved for around $150k on a bank statement loan at 8%, 30yrs fixed, with a minimum loan amount of $100k. so i'm stuck between houses around $115-$150. i'm leaning towards the lower end of that. My strategy is to rent out room by room, which can usually net more for the house in larger 4-6 room houses. i've been searching for my first house hack for 6 months now. i've had three properties under contract, which have all fallen through at some point or another. one was about 8 weeks. i've put in quite a few offers on houses, but usually lose to cash offers.

    my problem is, the houses need to qualify for the conventional lending standards, and almost nothing will qualify in my price range. i lost that 8 week contract because the siding was damaged. i had about $1000 in that deal, just to get a bad appraisal that the seller wouldn't budge on. the other problem is, at 8% financing, that pretty much eats up quite a bit of the cash flow, and i'm just trying to cover the PITI every month. so of the few deals i can make offers on according to the numbers, i've gotta always negotiate, and its just a weak offer that has led me to my 0/3 deal score. haha.

    all this to say, would it be better to try to BRRRR? it would obviously give me an edge as a buyer, which i am more than ready for. but i'm also a first time buyer and am absolutely clueless as to the details of it. i understand the basics of brrrr, but my biggest issue is my self employed income. i made about $5000 on paper last year after taking every possible legal deduction and sheltering as much as i could in my S Corp. i don't know if any lenders will do a cash out refi for me. even if they do, what's the point of refinancing if my interest rate is 8%?! obviously id have to, to pay off the hard money, but there's gotta be a better way to do this. Are there lenders who will offer long term financing for self employed ppl? espeecially if i can show a current Debt Service Coverage ratio of 1.25? i have been waiting to get into the real estate game for so long, and this is my current problem i'm trying to solve.

    any and all help would be appreciated! 

    all the best, 

    dan

    There are lenders that don't have to look at DTI, but it will be higher rate. Commercial lenders and hard money both have products like this.

    I have seen rates lower than 8%, but they generally are interest only or ARMs. Some people steer away from products preferring 30 year amortized. But the ARM and interest only can work well in the right situations, especially to help get your foot in the door.

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  • Bart H.
    Dallas, TX · Member since 2016 · 1k+ posts · 745 votes
    7y
    Originally posted by @Daniel Porter:

    howdy, from dallas tx. 

    i'm a full time professional musician, and my income fluctuates seasonally, as well as being all 1099s.  i've been approved for around $150k on a bank statement loan at 8%, 30yrs fixed, with a minimum loan amount of $100k. so i'm stuck between houses around $115-$150. i'm leaning towards the lower end of that. My strategy is to rent out room by room, which can usually net more for the house in larger 4-6 room houses. i've been searching for my first house hack for 6 months now. i've had three properties under contract, which have all fallen through at some point or another. one was about 8 weeks. i've put in quite a few offers on houses, but usually lose to cash offers.

    my problem is, the houses need to qualify for the conventional lending standards, and almost nothing will qualify in my price range. i lost that 8 week contract because the siding was damaged. i had about $1000 in that deal, just to get a bad appraisal that the seller wouldn't budge on. the other problem is, at 8% financing, that pretty much eats up quite a bit of the cash flow, and i'm just trying to cover the PITI every month. so of the few deals i can make offers on according to the numbers, i've gotta always negotiate, and its just a weak offer that has led me to my 0/3 deal score. haha.

    all this to say, would it be better to try to BRRRR? it would obviously give me an edge as a buyer, which i am more than ready for. but i'm also a first time buyer and am absolutely clueless as to the details of it. i understand the basics of brrrr, but my biggest issue is my self employed income. i made about $5000 on paper last year after taking every possible legal deduction and sheltering as much as i could in my S Corp. i don't know if any lenders will do a cash out refi for me. even if they do, what's the point of refinancing if my interest rate is 8%?! obviously id have to, to pay off the hard money, but there's gotta be a better way to do this. Are there lenders who will offer long term financing for self employed ppl? espeecially if i can show a current Debt Service Coverage ratio of 1.25? i have been waiting to get into the real estate game for so long, and this is my current problem i'm trying to solve.

    any and all help would be appreciated! 

    all the best, 

    dan

    If I were you, I would try and start with a house hack.  Buy a modestly priced house and rent multiple rooms out. 

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