Investor · Holland, MI · Member since 2018 · 39 posts · 15 votes
I'm a BRRRR investor looking to leave a W2 in the relative near future. My goal is to fill my time pursuing my investing career and working as a 1099 contractor. I have been finding that conventional banking proves difficult until I’m able to prove two years of income on tax returns. What are some good strategies in the meantime as I prepare to make the jump to be bankable in the early stages of my transition. As a BRRRR investor the refinance portion is crucial to keep pushing forward. I am willing to set up up entities and have cash that I can trickle into them but need suggestions on good methods of creating the right paper trail.
Property Manager · Baltimore, MD · Member since 2014 · 1k+ posts · 1k+ votes
5y
Second @Will Fraser - its all about having 2 years of tax returns. Some portfolio lenders make exceptions, but be prepared to pay higher interest rates for those loans. My advise, which probably isn't what you want to hear, is to keep that W2 income while building your 1099 income in parallel for the next 2 years. That way you can continue to get favorable refinancing terms while building the 1099 paper trail.
Real Estate Broker · Salt Lake City & Oklahoma City · Member since 2018 · 3k+ posts · 2k+ votes
5y
Hi @Andrew Tucker, this is an exciting proposition! I'm pumped for your next chapter in life!
As far as I've been able to discern in a few years of wrestling with Lenders THE paper trail, the ONLY one that makes a self employed borrow bankable is Taxable Income. One of the things that continually makes SE borrowers unbankable is taking every write-off possible and optimizing your taxes as a result of bearing the burden of employment. So, if you want to make yourself excellent bankable as a SE borrower it seems wise to work up to 2 years of filings, showing a growth year over year, and showing the Taxable Income that will substantiate the loans you want to have access to as a SE borrower.
In the meantime that probably means paying higher taxes than you are now, so be wise about that and maybe there is a way to optimize those 2 years in other ways.
Property Manager · Baltimore, MD · Member since 2014 · 1k+ posts · 1k+ votes
5y
Second @Will Fraser - its all about having 2 years of tax returns. Some portfolio lenders make exceptions, but be prepared to pay higher interest rates for those loans. My advise, which probably isn't what you want to hear, is to keep that W2 income while building your 1099 income in parallel for the next 2 years. That way you can continue to get favorable refinancing terms while building the 1099 paper trail.
Rental Property Investor · Hendersonville, NC · Member since 2016 · 446 posts · 412 votes
5y
I'm in the same spot now...I wish I had the answer too, but taxable income is the route as I understand it as well. You CAN continue getting loans with asset based lenders, which is what I just did, but you will be in the 5-7% interest range, making the BRRRR's tougher.
Rental Property Investor · Austin, TX · Member since 2014 · 34 posts · 45 votes
5y
Another thought is to partner with someone who is W-2 bankable while you grow the 1099 income and develop the 2+years worth of SE income/ tax returns. You would be trading some equity for ease of conventional funding.