Getting Loans with no income??

[Scott Bidwell]

Hello. I am new to investing.  I am trying to find our how to get into brrrrr.  While I don't have a current income, I have good to excellent credit. 

I am in the middle of closing on my own first home, which is $450,000.  I lost my job in November.  But I have cash available, aprox 1.5m.

I would like to get conventional style lending so I can minimize my cash investments and maximize my speed to growth, and get to work on finding my first of 10 properties within 3 years.

love to get some insight,  creative ideas, or just flat out honesty of my options.  

[Joe Splitrock]

I am surprised you are able to close on a personal residence without being employed. I am assuming you have investment income? If not then how are you getting your current mortgage?

[Joe Splitrock]

I am surprised you are able to close on a personal residence without being employed. I am assuming you have investment income? If not then how are you getting your current mortgage?

[James Hamling]

@Scott Bidwell I think it most productive for this conversation that we do some role playing here. You play the banker/ lender, and I will be the "investor": 

Hi Mr/Mrs Lender/ Banker, I'd like to get some $ for real estate please. I have $1.5 MILLION dollars (I hold for the applause). Yes, I'd like to buy 10 properties here is immediate future, between 4-5 million in total purchases because I'm gonna be a Landlord, yup. Gonna buy these places, get renters, make a bunch of $, life will be awesome. My income, oh yes please, I would like some income. OH! You mean what IS my income, uhmmm, nothing, but remember I said I have $1.5m right, yeah that should work. Oh, what do i do after I spend all of that, well duh the rental income of course silly-goose. My experience, well nothing but what's that got to do with it. Contingency funds..... Cap-what, whats that? Operational plan..... 

Yeah....... 

Look, kudos on having built that capital, or inherited it, printed it whatever, not the point, point is with no income, no experience, you have no security and don't say the properties secure it because no they don't, banks have no interest in inheriting a real estate problem to solve, they sell money plain n simple. 

Without a doubt I see it that your far better off being a private $ investor into an underfunded investor who does have experience, income etc and can best deploy your capital. Layers of positive reasons why this would be much MUCH better way to go, too many to list, and I can only think of 1 for not doing such and that's inability to correctly identify one, and in that case i say buy up some dividend stock like "O" or something. 

That's my Reality Check, hope it helps. 

[Scott Bidwell]

Quote from @Joe Splitrock:

I am surprised you are able to close on a personal residence without being employed. I am assuming you have investment income? If not then how are you getting your current mortgage?

I was previously employed when the process started, since the beginning of the process I resigned the position I held. 

so...thats the point of my post, I'm not able to get traditional lending.  Therfore looking for ideas or possibilities.  

believe me, I get it, it's not easy.  That's why I'm asking for ideas from others who may have done such in the past. 

[Steven Goldman]

I admire your vision. What you need to do is find an investor who will mentor with you so that you can learn the ropes. Than you need to find a property. Start out small. You will need enough money for a small deposit. Than find an investor, family friend, acquaintance and sell them on the project. Your contribution can be the leg work and the administration. Repeat a few times and you will be in business. All DSCR or Fix and Flip lenders will want someone with 6 months cash reserve before they will lend you money. Your income will not matter.

To build up a war chest you may want to wholesale and use the money you make to fund your deposits.

Initially you will have to flip in order to get your money out to increase your war chest to get going. You need to adjust your vision 10 properties in three years with no money or a job. Not gonna happen. 

[Scott Bidwell]

Quote from @James Hamling:

@Scott Bidwell I think it most productive for this conversation that we do some role playing here. You play the banker/ lender, and I will be the "investor": 

Hi Mr/Mrs Lender/ Banker, I'd like to get some $ for real estate please. I have $1.5 MILLION dollars (I hold for the applause). Yes, I'd like to buy 10 properties here is immediate future, between 4-5 million in total purchases because I'm gonna be a Landlord, yup. Gonna buy these places, get renters, make a bunch of $, life will be awesome. My income, oh yes please, I would like some income. OH! You mean what IS my income, uhmmm, nothing, but remember I said I have $1.5m right, yeah that should work. Oh, what do i do after I spend all of that, well duh the rental income of course silly-goose. My experience, well nothing but what's that got to do with it. Contingency funds..... Cap-what, whats that? Operational plan..... 

Yeah....... 

Look, kudos on having built that capital, or inherited it, printed it whatever, not the point, point is with no income, no experience, you have no security and don't say the properties secure it because no they don't, banks have no interest in inheriting a real estate problem to solve, they sell money plain n simple. 

Without a doubt I see it that your far better off being a private $ investor into an underfunded investor who does have experience, income etc and can best deploy your capital. Layers of positive reasons why this would be much MUCH better way to go, too many to list, and I can only think of 1 for not doing such and that's inability to correctly identify one, and in that case i say buy up some dividend stock like "O" or something. 

That's my Reality Check, hope it helps. 

 I appreciate your "reality" check.  However, I understand my circumstance isn't favorable, but possibilities are endless, as well as creativity is rewarded, from my past experience in business.

Its not as if I wasn't previously employed.  I built and sold a business is where I "inherited" cash from.  I haven't been wise in my years previous,  and am seeking advice, not insults as to my circumstance.  

As far as the thought of obtaining my goal number of homes.. here's my role play back with you

Me.  I'm going to get into real-estate with no income and buy 10 homes within 3 years to hold for future.

you: (insulting post above)

Me:  I appreciate your response, I've had people doubt me in the past in previous business ventures, and it doesn't do anything but fuel me.  So I value your input. I GET IT DONE, AND I WILL GET THIS DONE!

[Scott E.]

You are going to have a hard time getting a conventional loan unless you have some form of monthly income.

With that being said, most large lenders should be able to give you 'credit' for some income using what's called an asset depletion calculation on that $1.5M in savings of yours. They will haircut the account, and then divide it out over 30 years. Won't leave you with much, but they should be able to give you around $2,000-$3,000 per month in income based on your assets, assuming they are liquid.

Call a mortgage loan officer and see what they say.

[Scott Bidwell]

Quote from @Steven Goldman:

I admire your vision. What you need to do is find an investor who will mentor with you so that you can learn the ropes. Than you need to find a property. Start out small. You will need enough money for a small deposit. Than find an investor, family friend, acquaintance and sell them on the project. Your contribution can be the leg work and the administration. Repeat a few times and you will be in business. All DSCR or Fix and Flip lenders will want someone with 6 months cash reserve before they will lend you money. Your income will not matter.

To build up a war chest you may want to wholesale and use the money you make to fund your deposits.

Initially you will have to flip in order to get your money out to increase your war chest to get going. You need to adjust your vision 10 properties in three years with no money or a job. Not gonna happen. 

 Perhaps I mis stated on my original post.  I have cash to invest, I just don't have income.  

my desire is to buy properties and hold for long term wealth building.  

I am trying to find creative ways to get lending on the homes I purchase allowing my cash to go further and using.  

deposits,  rehab money etc is not the issue 

[Joe Splitrock]

Quote from @Scott Bidwell:

Quote from @Joe Splitrock:

I am surprised you are able to close on a personal residence without being employed. I am assuming you have investment income? If not then how are you getting your current mortgage?

I was previously employed when the process started, since the beginning of the process I resigned the position I held. 

so...thats the point of my post, I'm not able to get traditional lending.  Therfore looking for ideas or possibilities.  

believe me, I get it, it's not easy.  That's why I'm asking for ideas from others who may have done such in the past. 

 When you walk into closing, you will be asked to sign paperwork attesting to the fact that nothing changed financially. You have to disclose your resignation and lack of income to your lender. Or were you trying to say that you did disclose lack of income and they wont close the loan? This is a tough situation because of underwriting requirements of traditional mortgages. This means you will not qualify for many loan products. 

You will want to look for DSCR loans potentially which use income of the property as part of the qualification model. Another option is use cash to establish your portfolio, then refinance after you develop a track record.

[Tarik Turner]

I agree that DSCR loans will be the best way forward in this scenario.

[Eric Goldman]

Personally, In this situation. I would buy my  primary in cash or do a stated income mortgage. either way once your back working(if you want to) refi out. (primary home)

Investing, there are a million ways to get rentals if you have cash.  

[Stephanie P.]

@Scott Bidwell

I don't know of anyone that's doing no income verification for primary residence, but if there is someone that can do that, that would be the first way to go. Absent that, you could pay cash. DSCR won't work because (this is an assumption) you would be living in the property and they are for non-owner occupied dwellings.

Stephanie

[Garrett Bowser]

Hi Scott,

I'm a designer who is new to real estate investing (particularly short-term rental properties) using the BRRRR method after listening and learning from the experts featured on the BiggerPockets podcasts over the last year. So, take my advice with a grain of salt as I am still a rookie! I'm sure you'll get some excellent advice from way more experienced investors than me.

However, I'd still like to share my perspective as someone who doesn't have a regular salary either to acquire traditional funding on my own but who possess a talent for design, creating 3D models of floor plans, project managing, and spotting STR potential. So, I must seek out partners who can supply capital until I get a few solid BRRRR's under my belt to venture out on my own or with other partners on bigger investments at a time when I'm able to share equally in the financial risk.

HERE'S MY ADVICE:
Since you have $1.5M cash available, I would use that money to purchase five to ten properties in tourist areas where the cost of real estate is low but the short-term rental rates are high and have an average annual occupancy rate above 70%. If for some reason any of those properties dip below 50% for a month or two I would also invest in other STR's located in places where they make more money during those low periods. (i.e. winter ski cabins may do really well with a 92% occupancy rate in the winter but may dip down to 26% in the summer ... So, I'd want to make sure that I had STR's in other locations in summer destinations where the occupancy rate is much higher to help balance each other out).

If each property is then generating on average $3K-$5K/mo. then I would expect to make $5K-$25K/mo. (60K-$300K/yr.) on five STR's or $30K-$50K/mo. ($300K-$500K/yr.) on ten STR's minus the taxes, utilities, and maintenance of each property.  

Then I would cut myself a check from the LLC every couple weeks to prove a salary so I can apply for traditional mortgages later on. I would also seek out loans based upon the real estate value of my portfolio and the rental income of the combined units to finance my next deals.

Like I said, I'm still learning but that's the strategy I would go for with the limited knowledge I have now. I'm interested to read what other more experienced investors advise you. Best of luck to you and keep us posted if you're able to secure a loan without a job. Inquiring minds want to know! 

[Joe S.]

There are ways and workarounds, but if you're looking to do plain vanilla stuff it might be difficult. It is my understanding that the BRRR strategy works for beginners as well. There is a larger down payment requirement on the hard money/bridge loan side for someone with a no track record typically. One lender told me that they do not require a track record on the refinance side. You would have to use a non-QM loan product though. As far as the one gentleman above that role-played with you don't take it personally. You wasn't singled out and he's known to have a way with words so it is what it is.

[Austin F.]

What I would do in your situation is:

Buy first BRRR with your cash (with a finger out to the man), pay for your rehab with your cash, then place a tenant. After that's all done I would walk into the bank and show them what you did (before and after pics), how much it cash flows, appraised value etc. Then ask for a refi after showing you can do it.

Yes it will be slower to grow this way, but if you want to stick to your current plan then this is the only(?) way. Lenders will lend on rental income, but only if it is proven (A guy with 10 properties and 10 years experience will have a much easier time than someone trying to refi their first BRRR).

With the pile you have it sounds like you can do two of these deals concurrently that will speed things up. Walk in to a few banks, tell them what you want to do, and ask them what they would advise. I've found SOME bankers to be pretty helpful and even on the rare occasion able to think a little outside the box.

[Matthew Irish-Jones]

@Scott Bidwell why don’t you buy in cash and worry about taking loans after you have stabilized your income???

1.5 Million is a lot of Capital. I buy in cash now, renovate in cash, then take a mortgage. You could just delay the last step until you are ready. In the meantime you can still get started, will generate more cash flow, and still build equity.

If the portfolio is performing well and under a business entity there is a chance you will be able to get a loan on the performance of the entity or the hard assets themselves. Traditional financing will be tough until you have stable income.

[David Malik]

If all of this is liquid, why don't you find out whether you even like real estate by flipping a couple of houses. Why not take ten, twenty, or thirty percent of it find a market that will work for that amount and see? BTW, I have heard that the best time to talk to lenders (me) is when you don't need our money. Believe it or not although I am a lender, actually broker for a few, I will likely never get into flipping or rental. 

I love the numbers side of it as I was a Econ-Finance major in college but RE doesn't get my blood boiling: Numbers, winning & closing does. Winning in this business for me is making sure that all three sides are thriving: me, borrower, & lender.  BTW, I am pretty much a newbie in this biz as well. My experience is in working capital from SBA loans to more exotic stuff. COVID has caused me to make sure that my portfolio going forward is a bit more diverse. 

[Ryan Hamaker]

Hi Scott,

I have an idea for you regarding a lender that may be able to assist you.  PM me and I'll get the details to you.  I'm in Tampa so we are pretty local to each other.

[Dave Skow]

use the cash you have to  offer  decent down payments to  sellers and  ask them to carry the balance  on a above market rate  note for  5-7 years ....might be  tough to  locate sellers  willing to do this  , but its an option

[Mike Davis]

@Scott Bidwell There are hard money lenders (HML) that will finance fix & flip loans and will not require employment because the flip loans are asset based. Since you have the reserves, you can make that happen. Most HMLs will require you to do this under a business entity.

[David Dachtera]

@Scott Bidwell,

In addition to what the others have said, consider ...

You need income - some form of income. You have cash. The most lucrative use of cash tends to be money lending. Ask any banker.

So, you may want to rethink your current circumstance.

You may need to postpone your home acquisition until your situation poses fewer challenges. Your motivation and determination are admirable. They just don't carry much weight with lenders or anyone who may buy those notes from the originating lender. My suggestion for this would be either pay cash for your new home and deploy your remaining reserves to produce income, or postpone your home purchase for now.

Then, build a new business as a hard-money lender using your own resources. Use THAT income to finance your own home and/or investment / income properties.

My $0.02 ...

[Nick Coons]

@Scott Bidwell

A couple of others have touched on the idea of DSCR loans, so I wanted to contribute an idea along that same line.

You could purchase your first property with cash, rehab, and rent. At this point, your CoC return would suck, but your positive cash-flow should be really high. Make sure this property belongs to an LLC or similar.

Purchase your second property (also as a a business entity) with a hard-money loan (which doesn't require income because, as others have stated, it's asset-based). Once the rehab is finished and a tenant is placed, using your business entity's combined rental income (i.e. including your first property), you should have no problem exceeding a 1.2 DSCR ratio and be able to acquire a loan that way, even if the second property were in, say, a high-appreciating market that doesn't cash-flow well. You can keep this strategy going using your first property, fully paid off, as the cash-flow engine that qualifies you for more DSCR loans on each additional property. At some point, you reach the experience level where you can mortgage the first property to pull out most of your cash to be able to accelerate your acquisitions.

That's one option. Another might be to partner with someone who has an income, but not your cash resources, so you both bring something to the table. You have the financial stability to make the project work, and they can qualify your partnership for the mortgages.

[Aaron Gordy]

@Scott Bidwell Commercial deals will be easier as the property is looked at in terms of the cash it produces. They will look at your money, income and credit no doubt but they will spend a great deal of time scrutinizing the property itself. Reach out to a local mortgage broker that specializes in commercial loans. Or you could just go from bank to bank to bank until you get the one with the best terms. 

You could always partner with folks too and be a little more passive with it all. I am always down with partnering with level headed smart folks. 
Flipping houses is not for the faint of heart. Getting into a deal with a hml sucks if one can't get construction crews out there on time and the project lasts longer than you thought decreasing your yield. Flipping requires relationships with construction folks especially now. 

You could buy a property all cash. Do a cash out refi. Then move onto the next one. 

That is just off the top of my head. There are a myriad of options. 

[Alex Hunt]

There is a very easy solution and I or some else on the Brrrr Loans team can have you quotes for specific location's within a few hours. No doc 30 year lenders meaning, no employment verification or tax returns required. Only thing we need to see is liquidity reserve/ 6 months of the PITIA payment. 

In my professional opinion the best option here would be to either use the cash as downpayment for a 30 year fixed purchase, or to buy in cash with a delayed purchase to receive 75% of that cash back to purchase the next.  Quite frankly with $1.5 million liquid you can easily be approved to purchase upwards of $7 million in real estate. Hope this was helpful, for more information please message me or inquire on Brrrr Loans Bigger Pockets page.

[Account Closed]

Deposit the 1.5M in a brokerage and invest in dividend stocks/etf. Then borrow up to 75% back as a margin loan and buy property with cash. You can easily generate 5-8% in dividends, get some capital growth and buy REI for high cash flow rentals at the same time. The margin loan will cost you maybe 2% (IBKR offers 1.5%).

[James Hamling]

Quote from @Scott Bidwell:

Quote from @James Hamling:

@Scott Bidwell I think it most productive for this conversation that we do some role playing here. You play the banker/ lender, and I will be the "investor": 

Hi Mr/Mrs Lender/ Banker, I'd like to get some $ for real estate please. I have $1.5 MILLION dollars (I hold for the applause). Yes, I'd like to buy 10 properties here is immediate future, between 4-5 million in total purchases because I'm gonna be a Landlord, yup. Gonna buy these places, get renters, make a bunch of $, life will be awesome. My income, oh yes please, I would like some income. OH! You mean what IS my income, uhmmm, nothing, but remember I said I have $1.5m right, yeah that should work. Oh, what do i do after I spend all of that, well duh the rental income of course silly-goose. My experience, well nothing but what's that got to do with it. Contingency funds..... Cap-what, whats that? Operational plan..... 

Yeah....... 

Look, kudos on having built that capital, or inherited it, printed it whatever, not the point, point is with no income, no experience, you have no security and don't say the properties secure it because no they don't, banks have no interest in inheriting a real estate problem to solve, they sell money plain n simple. 

Without a doubt I see it that your far better off being a private $ investor into an underfunded investor who does have experience, income etc and can best deploy your capital. Layers of positive reasons why this would be much MUCH better way to go, too many to list, and I can only think of 1 for not doing such and that's inability to correctly identify one, and in that case i say buy up some dividend stock like "O" or something. 

That's my Reality Check, hope it helps. 

 I appreciate your "reality" check.  However, I understand my circumstance isn't favorable, but possibilities are endless, as well as creativity is rewarded, from my past experience in business.

Its not as if I wasn't previously employed.  I built and sold a business is where I "inherited" cash from.  I haven't been wise in my years previous,  and am seeking advice, not insults as to my circumstance.  

As far as the thought of obtaining my goal number of homes.. here's my role play back with you

Me.  I'm going to get into real-estate with no income and buy 10 homes within 3 years to hold for future.

you: (insulting post above)

Me:  I appreciate your response, I've had people doubt me in the past in previous business ventures, and it doesn't do anything but fuel me.  So I value your input. I GET IT DONE, AND I WILL GET THIS DONE!

 So you DON'T want to listen to reality.... ok. 

Thing is, your original post, you specifically asked for the hard truth, and I gave it, and here we are yet again with yet another crying whining post about how someone poo-pooed all over someones unrealistic ridiculous expectations. 

If your skin is rice-paper thin, then don't ask for critical feedback. 

What your expecting, is totally ridiculous. NO track record or experience, AND you want a bank to give you 4 million dollars to play with. No, this is NOT an exercise in creative solutions, it's an exercise in lunacy, plain n simple. Your giving 0 securitization for the capital, 0. You will be lucky to get an answer from $$$$ half as nice as mine.