Leaving W2 Job and Getting Bank Loans

Buying & Selling Real Estate
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Leaving W2 Job and Getting Bank Loans

Joe Johnson
Member since 2018 · 2 posts · 1 vote

Hello Biggerpockets,

I'm wanting to leave my w2 job as I've managed to grow my rental portfolio to 16 units providing 50k net income per year. My one snag is that when I talk to my local banks, they say they will not lend to me on future deals without the w2 income. I have grown very quick and I do not have several years of stabilized tax returns to show the bank. All my properties are in LLC's and I'm looking to get business loans.

I have several doctor friends with high income. Any thoughts on if it would work for me to form an LLC with them, I put all the money down and do all the work, and just give them 5-10% of the equity and cash flow in order to use their income for securing business loans? I don't see any down side for them as they will be protected since the properties are in LLC's and they have no money into it.

Any other thoughts or ideas?

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  • Benjamin AakerPro Member
    Rental Property Investor · Brandon, SD · Member since 2015 · 1k+ posts · 1k+ votes
    5y

    Hi @Joe Johnson and welcome to BP!

    I am a physician and real estate entrepreneur. I have invested in others' deals and principaled my own.

    Your physician friends will have significant cash but will want to know how you will get their money back to them. It's good that you have some experience and you will need to explain this to them. You found out that you can't secure the loan yourself so you are looking for one or more key principals. These people have to have a large net worth but also need to risk it in order to be the principal on your financing. Even though they might have no money in the deal, they are risking their income because if you fail, they are on the hook to pay the mortgage. Unless you find a sucker they will want at least 50% of the deal for the loan guarantee. You shouldn't have much heartache giving that to them as they are risking a lot on your word that you'll do a good job. 

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  • Steven Goldman
    Lender · PA · Member since 2019 · 533 posts · 461 votes
    5y
    Originally posted by @Benjamin Aaker:

    Hi @Joe Johnson and welcome to BP!

    I am a physician and real estate entrepreneur. I have invested in others' deals and principaled my own.

    Your physician friends will have significant cash but will want to know how you will get their money back to them. It's good that you have some experience and you will need to explain this to them. You found out that you can't secure the loan yourself so you are looking for one or more key principals. These people have to have a large net worth but also need to risk it in order to be the principal on your financing. Even though they might have no money in the deal, they are risking their income because if you fail, they are on the hook to pay the mortgage. Unless you find a sucker they will want at least 50% of the deal for the loan guarantee. You shouldn't have much heartache giving that to them as they are risking a lot on your word that you'll do a good job. 

    I totally agree with @joejohnson. As a broker I advise my borrowers who need down payment assistance to form partnerships with a partner who can supply the capital. Obviously, you will want to make the best deal. In many cases surrendering a 50 percent share of the deal will be necessary. One hundred percent of nothing, is nothing.  

    As an alternative, funding companies will lend you money without regard to your income. The rate is higher, but they underwrite their loans based on debt service coverage.(1.0 or greater) So you need the down payment, and closing cost money, but they do not depend on your income to approve your application. (You need six months cash reserve in order to be approved.) Good luck. Real estate investing !is a great journey! 

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