Started a Business, QUIT MY JOB! .... Now How To Get Funding?

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Started a Business, QUIT MY JOB! .... Now How To Get Funding?

Frank Garcia
Business Owner - Online Retail · Seattle, WA · Member since 2014 · 17 posts · 3 votes

Hi!

You may have seen my posts from about a year ago stating I was going to get into wholesaling. I have gone another route and started a non-real-estate related business that has been doing well and growing. Thankfully it allowed me to quit my job (hallelujah) mid way through the year. 

Where I am at now is I am currently renting, and would like to purchase and do a live in investment with an fha loan on a 4 plex. I want to do this by early next year.

Issue I've had is that my business was incorporated in 05-2015, and I've talked to bank and loan officers which have all said they would need the business to be established for a minimum of 2 years. I do not want to wait another year and half before my first purchase. 

What are my options to make this happen?

Thanks ahead of time!

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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
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Hard money is probably not an option for a residence.  Most HMLs require that you do not occupy the property.  A loan for a property you're going to occupy is subject to a lot of rules and regulation.   HMLs usually don't do that sort of loan.

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  • Nnabuenyi Anigbogu
    Chicago, IL · Member since 2015 · 298 posts · 261 votes
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    To answer this will require a bit more info. Is the business you started in the same industry that you previously had a job in?

    The only way i can see you being able to do it will be to utilize portfolio lenders. I doubt any Fannie or Freddie lender would touch it due to the strict rules they follow.

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  • Gene Livingston
    Investor · Kyle, TX · Member since 2015 · 113 posts · 102 votes
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    How about a o/o HUD? I see 109 of those in Seattle. Most lenders will want 2 years of business history.

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  • Scott TrenchPro Member
    Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes
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    Originally posted by @Frank Garcia:

    Where I am at now is I am currently renting, and would like to purchase and do a live in investment with an fha loan on a 4 plex. I want to do this by early next year.

    Issue I've had is that my business was incorporated in 05-2015, and I've talked to bank and loan officers which have all said they would need the business to be established for a minimum of 2 years. I do not want to wait another year and half before my first purchase. 

    What are my options to make this happen?

    Thanks ahead of time!

    Frank - this is an issue that a lot of newbie real estate investors seem to run into. By quitting your job, you have made it much harder to qualify for financing on a rental property and will likely not be able to, or have extreme difficulty in qualifying for an FHA loan. Banks (and landlords like myself) want to see reliable, long-term income streams.

    Honestly, I'd suggest looking into re-entering the workforce for a few more months with a job again in the same line of work. Once you've had the job a few months, you may still be able to show a lender "continuity" demonstrating that you have been in the same line of work for a few years and qualify for financing. Just make sure that you talk to a few lenders first and verify that yes, you CAN get qualified for a loan of this type if you re-enter the workforce.

    Quitting your job to invest in real estate full-time seems to me to be a poor plan in most cases, because of the very predicament you find yourself in now. Far better is to build up your portfolio while leveraging your income and establishing several years of rental history and business income.

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  • Brandon Tobey
    Investing and Recruiting · Everett, WA · Member since 2015 · 9 posts · 1 vote
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    @Frank Garcia

    An option that you may want to look into is talking to a hard money lender. There are a lot of considerations you would have to make before deciding to move forward, but if it wasn't on your radar it is an option. It might require you to change your plans for the investment somewhat, however.

    You mentioned that you had wanted to start out in wholesaling; I completely understand why someone would want to move away from that, but some of the skills you'd use in wholesaling could be useful to you again. One of my mentors picked up their first major property with owner financing while searching for potential deals to assign, then chose to rent out the 3bed out as 3 student housings.

    Can't guarantee it would work in your situation, but it might be worth considering, at least.

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  • Frank Garcia
    OP
    Business Owner - Online Retail · Seattle, WA · Member since 2014 · 17 posts · 3 votes
    11y

    Thank for the quick responses!

    @Nnabuenyi Anigbogu- No it is not, very very small correlation. I used to be in auto-upholstery, and my main business is now selling retail sewing supplies online

    @Scott Trench - To your first and your last point, this is very understandable. I should have mentioned I had a 40 hour a week, (50-60 including the 2-4 hours commute each day) only paying just above minimum wage. So I didn't walk away from much, and I didn't quit for the real estate investing, but because of my business. I grew the business for a long time until I got to the point I was making a considerable amount more on the weekends/evenings then my 9-5 and the job was in the way of growth. 

    I have considered this, but where I am at now in my business, rather than picking up a job and the time it would take away, I would be better off growing my own business and waiting a year and a half to invest once I have established business history. By then I may ready to invest in larger commercial property also.

    Even if it is not by FHA,what are my other options to get similar funding (low down payment, 4 plex etc.)?

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  • Nnabuenyi Anigbogu
    Chicago, IL · Member since 2015 · 298 posts · 261 votes
    11y

    @Frank Garcia The reason i ask that is that some porfolio lenders use a more common sense approach to underwriting and will consider businesses less than 2 years old if it is in the same field as where you previously worked. That way they know you are more likely to keep up the track record of making money.

    Since that is not the case then you will have a VERY hard time finding someone to do a low downpayment loan. Any portfolio lender that takes a chance with you will require at minimum 20% down (probably over 30% given your risk level). At this point i would say start calling up small banks that might do portfolio loans and save up a significant downpayment. Wholesaling can help you build some capital.

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  • Brian Gibbons
    Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
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    Originally posted by @Frank Garcia:

    Thank for the quick responses!

    @Nnabuenyi Anigbogu- No it is not, very very small correlation. I used to be in auto-upholstery, and my main business is now selling retail sewing supplies online

    @Scott Trench - To your first and your last point, this is very understandable. I should have mentioned I had a 40 hour a week, (50-60 including the 2-4 hours commute each day) only paying just above minimum wage. So I didn't walk away from much, and I didn't quit for the real estate investing, but because of my business. I grew the business for a long time until I got to the point I was making a considerable amount more on the weekends/evenings then my 9-5 and the job was in the way of growth. 

    I have considered this, but where I am at now in my business, rather than picking up a job and the time it would take away, I would be better off growing my own business and waiting a year and a half to invest once I have established business history. By then I may ready to invest in larger commercial property also.

    Even if it is not by FHA,what are my other options to get similar funding (low down payment, 4 plex etc.)?

    Low down traditional is ONLY FHA

    Non traditional is JV Partners, syndication, and and private lending.

    Otherwise its 20% down full docs and credit

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  • Upen PatelPro Member
    Lender · Nationwide Lender · Member since 2015 · 1k+ posts · 814 votes
    11y
    @Frank Garcia Here are options to go non-agency route, where you might be able to get a loan with just 1 yrs of business. The rates are not attractive, but they are not as bad as hard money.

    Upen Patel, Mortgage Banker

    Federal NMLS# 1374243

    [email protected]571-200-6180
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  • Hattie Dizmond
    Investor · Dallas, TX · Member since 2014 · 2k+ posts · 1k+ votes
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    @Frank Garcia

    Brandon Turner found himself in the same situation, after he quit his job and had to go back to work at a bank to qualify for the financing.

    An option may be to find someone to go on the mortgage with you.  That or waiting the 18-months for your business to season is probably your best choices, since hard money is expensive and will likely require you refi in 12-mo or less.

    1Reply
  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    11y

    Hard money is probably not an option for a residence.  Most HMLs require that you do not occupy the property.  A loan for a property you're going to occupy is subject to a lot of rules and regulation.   HMLs usually don't do that sort of loan.

    2Reply
  • Vincent Crane
    Realtor · Atlanta, GA · Member since 2015 · 693 posts · 357 votes
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    Join every real estate association in your city, it's all about relationships.

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  • Brandon Stevens
    Attorney · Seattle, WA · Member since 2014 · 5 posts · 4 votes
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    I believe Washington Federal does a lot of portfolio loans and they have decent rates. 

    1Reply
  • Logan Hicks
    Business Owner/Investor · Millersville, MD · Member since 2015 · 191 posts · 71 votes
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    Its called unique financing.

    What youll nee dto do is Establish your D&B (Dun and bradstreet) go get a fedex line, an Amazon line, a cell phone line (verizon is best), and a FIOS business internet.

    Have the 4 lines report to Dun and Bradstreet, and that will start to establish your business credit.


    You are going to need it in order to grow past the 2.5 million dollar cash reservers, or the 300+K income requirement in order to qualify for financing, even after you clear the 2 year mark.

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  • Troy Sheets
    Developer · Philadelphia, PA · Member since 2013 · 1k+ posts · 902 votes
    11y

    Owner financing is your best bet at this point. Search Craigslist daily for owner finance, owner carry, etc. Something with a small down payment requirement. You could also direct mail and see if any of your prospects are interested in owner financing. Worst case, they're not, but you can still wholesale the property if they want out. 

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