BRRR.. and Refinancing when you're Self-Employed

13 Replies

I'm looking to own multiple properties. I have about $150k to start but want to apply the BRRR method. Only problem is I show as self employed on my tax returns

What do you do to get over this hurdle?

Like many people I tend to write off a lot of my income so the DTI ratio isn't as padded as some others.

Hi Aram, a traditional lender will want to review your past three years of bank statements to determine eligibility. If that doesn't fly, another option will be to go through a commercial loan broker or specialized lender who will look at the quality of the collateral to determine whether to make the loan or not, rather than scrutinizing your personal financial history.

Hi Aram, 

I'm not in your exact circumstance but I did have some refinance concerns before my first couple acquisitions using a BRRR-type approach.

Are you searching in your area or out of state?  My approach initially was to interview several banks and mortgage brokers, share a high level view of our investment approach and personal finance info to effectively pre-qualify for the hypothetical refinance amount. In addition to the relative peace of mind that we would comfortably qualify up to a certain amount (in addition to other exit strategies), some additional benefits included: 

  • Evaluated several different refinance loan products and felt very confident about the LTV%/rate/other terms we ended up with
  • Found a lender with an appraisal process that I was comfortable with
  • Found a lender who was comfortable with our Delayed Financing Exemption approach and we've been able to refinance each property immediately after rehab (instead of standard seasoning. 

All that to say I would put together a summary of what you plan on doing and your relevant personal finance details and starting calling around / meeting in person to help triangulate your best options. 

Good luck!

@Aram L. part of the challenge for self employed people is many times there is "under the table" unclaimed income or inflated expenses due to writing off everything imaginable. This is why every self employed rental applicant I have ever had get's denied. I don't count unclaimed income, because it cannot be verified. If there is more income on your bank statement than your taxes reflect, that is something the bank may ask you to explain. Be prepared and don't explain it as "cash jobs" because banks don't want to be party to tax evasion.

Originally posted by @Kristen Duggan :

Not sure what you mean. But I do know that there are definitely some states that are harder to get funding in like North Dakota, South Dakota and Maine. 

 Why is it harder in these states specifically. Just curious since I am from South Dakota. thanks!!

If you focus on cashflow over equity in a BRRR deal, perhaps you can buy and rehab in cash and show enough cashflow for a refi. At worst, you could just bank the cashflow until you had enough for another rehab.

For example, where I am, I could buy and rehab a B class SFH for $40-50k and have it generate at least $600 positive cashflow when complete (before any refi). So, with $150k, I could generate $1800 positive cashflow per month to either help me get a refi or to save for another buy/rehab.

From the general consensus it doesn't look too promising for the self employed crowd.

Does anyone have actual real life experience where you've bought a property (in my case putting 20% down financing the rest), rehabbed, rented and pulled out enough money for the next BRRRR?

Why doesn't it look promising?  This is very common.

Use a commercial/porfolio loan for your refinances.

You won't qualify for a conventional Fannie/Freddie loan.

@Aram L. , your self employment struggle for financing is one of the reasons why I am hesitating going full time with my handyman business. Just starting out in RE and loosing my W-2 income at the same time would really shoot me in the foot! Especially since my side work at the moment does not make half of what I do at my regular job. However, in my reading and podcast listening I learned about at @Brian Garrett mentioned, Portfolio lenders.

These folks keep their loans in house and do not sell them to uncle sam, therefore their qualifications are a little different. I am guessing they also are more interested in the collateral of their loan than your DTI number. It seems like this is how commercial lenders work as well just from what I have read and heard. They are interested the the numbers from the deal. I think I would begin calling all your local banks and explain your situation and see if they would even be able to fund you.  

Good luck!