Rental Property Investor · Fort Mill, SC · Member since 2018 · 35 posts · 9 votes
Hello all! So I am on the fence of quitting my W2 job and being my own boss in my family business (1099). Even though I am soooooo ready to get out of the corporate system, I am nervous it will hurt me when it comes to investing in real estate. I heard it is really hard to get conventional financing when self employed, but is getting a conventional loan considered the same as refinancing a home that is owned out right? If I can buy a house cash, fix it up, and put a tenant in place; can I cash out refi while being self employed or is it considered just as hard as getting a conventional loan to buy the property?
Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
7y
@Jeremy England
I actually only use commercial loans. My props still cash flow with them and I think they are easier to get. None of the DTI stuff. I had a terrible time with conventional lending because they didn’t see that I’d added more value than what I’d bought for. I get commercial loans even on small properties.
Here is another commercial loan trick I never here anyone talk about: I buy a 4plex with cash based on comps, I rehab it and up the income. Then I get it valued as commercial RE and take a cash out refi commercial loan. No seasoning as long as I’m not doing over 100 LTC. As long as the income is good and I’m in it all cash they don’t seem to mind giving me all or most of my money back. They look at the current asset and the other assets I have.
At first I thought I couldn’t get cash flow with a 20 year am, but my underwriting showed that I would, and it’s true! So I always encourage people not to discount commercial lending-even on your first deal!
Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
7y
@Devin Scott, yes it will be easier to get conventional financing with a W2 job, all things being equal (i.e. you have good credit). If you are1099 and show several years of consistent income, that will probably be fine as well. Lenders want to see safe and consistent.
Regarding financing a property that you bought with cash, you shouldn't have too much trouble as long as you have documented rent history that shows Debt-to-Income ratio. Again, safe and consistent.
Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
7y
@Devin Scott
I suggest building a relationship with a commercial lender, they don’t care as much since they hold loans on their books and look at you and the asset. I find it easier to buy cash, rehab, then do a commercial cash out loan.
Investor · Chattanooga, TN · Member since 2016 · 676 posts · 543 votes
7y
I 100% agree with @Lee Ripma, Talk to bankers first make relationships with them. I have been able to get loans with out a W-2 and with no regular income history but its been a challenge at times. I have only been successful because I had prior banking relationships with commercial lenders in part because of my former employment but also because I personally did loans with them before leaving my w-2 job.
Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
7y
Generally speaking, banks don't like providing cash out on a refinance regardless of if you're self-employed or have a W2 income. Some will, sure, but they're generally not a fan of it. So it's actually easier to pay off an existing bank loan or private money loan than to get cash out on a refinance.
Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
7y
having a W2 makes financing residential properties SO MUCH EASIER. that's a big reason I still keep my job (and it's kinda awesome)
1099 financing isn't actually harder, but it's a 2 year minimum
you can go commercial, but for small loans it's a PAIN to underwrite. Transactional costs are higher, terms are worse, all for one single unit. Terribly inefficient.
If you just hate your job, you're far from alone. Quitting is not going to make your life easier though
Rental Property Investor · Fort Mill, SC · Member since 2018 · 35 posts · 9 votes
7y
@Jaysen Medhurst
The consistent income for years is the problem as I’m looking to just get into that while pursuing real estate as well. Thanks for the advice man!
Rental Property Investor · Fort Mill, SC · Member since 2018 · 35 posts · 9 votes
7y
@Alexander Felice Hey man!!!!! So glad you commented on the post because you are actually the guy that made me think about it in more depth after HEARING YoU oN THE PODCAST (IdK WHY IT WENT To ALL CAPS) . I love your strategy of delayed financing (I believe it’s called). How often do you make a profit from one of your deals when you cash out? I’m guessing deeply depends on the deal?
@Devin Scott
I suggest building a relationship with a commercial lender, they don’t care as much since they hold loans on their books and look at you and the asset. I find it easier to buy cash, rehab, then do a commercial cash out loan.
What sort of terms are you seeing on a commercial cash out? LTV? Amoritization? and rate?
I ran into this on my first rental, I bought with cash, then rehabbed with cash, then rented, then got hit with a seasoning requirement. This is for a 30yr mortgage. I spoke with a commercial lender that offered a 20 year amortization but a higher (6%) interest rate than I could get with a mortgage. So decided to wait for the traditional seasoning req. A 20 year amorti and 6% would exceed my monthly cash flow goal.
Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
7y
if you use delayed finance you don't' make any profit from the cash out. The product is built specifically to prevent that.
you can pull out 100% of the HUD1 (line 120), so there is no way to profit directly from the cash out. If you want to pull out extra, you'll need to wait the 6 months. However this assumes that there is enough meat on the bone to warrant the extra wait time, which means you're going to own the property at significant discount.
If I own a property for 65k and it's worth 90k, the spread at 75% is only ~2k, not worth my time.
but if I own a property at 65k and it's worth 100k, then the spread at 75% is 17.K, definitely worth waiting for .....though I'm willing to bet this is extremely rare.
that said, other than making profit on the intial cash outlay, the deals have nearly 0 invested in them when you do it correctly (aside from transactional costs you can't wrap in to financing) so the cash flow is pure profit, plus the created equity, should be plenty even for the most greedy of us ;)
Rental Property Investor · Fort Mill, SC · Member since 2018 · 35 posts · 9 votes
7y
@Jeremy England check out what Alex is talking about in the comments. It’s called delayed financing where you can pull out 100% of the HUD. He puts all of his rehab costs on the HUD at the title company and can refi without waiting for the seasoning period! 🤯
@Jeremy England check out what Alex is talking about in the comments. It’s called delayed financing where you can pull out 100% of the HUD. He puts all of his rehab costs on the HUD at the title company and can refi without waiting for the seasoning period! 🤯
I don't know how people do that because when I was looking I was being told no. at least not without at least a 3 month seasoning
the bank i was talking to would only do up to 65pct ltv, regardless of the HUD costs without the seasoning
Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
7y
It will be much easier to pull out high leverage if you have an existing loan on the property. It doesn't make a lot of sense, but if you go get a construction loan from a local bank, do your thing and then refi into a perm, it will be easier that if you buy with cash.
Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
7y
@Jeremy England
I actually only use commercial loans. My props still cash flow with them and I think they are easier to get. None of the DTI stuff. I had a terrible time with conventional lending because they didn’t see that I’d added more value than what I’d bought for. I get commercial loans even on small properties.
Here is another commercial loan trick I never here anyone talk about: I buy a 4plex with cash based on comps, I rehab it and up the income. Then I get it valued as commercial RE and take a cash out refi commercial loan. No seasoning as long as I’m not doing over 100 LTC. As long as the income is good and I’m in it all cash they don’t seem to mind giving me all or most of my money back. They look at the current asset and the other assets I have.
At first I thought I couldn’t get cash flow with a 20 year am, but my underwriting showed that I would, and it’s true! So I always encourage people not to discount commercial lending-even on your first deal!
I have a fsbo property I'm looking at. The arv is 385k. It's a 2/1. The seller wants 330k. The seller says the home needs to be totally demolished but it does not look so from the outside.
Should I do a total demolition and rebuild or should I just do a total rehab at say 40k? Or should I walk away because there is not enough meat on the bones even after I put a tenant/buyer in the place after rehab (rent 1750/m)?
@Devin Scott I recently spoke with @Andrew Postell about this topic. He has a great post about how you can refinance quicker. Essentially, you loan yourself cash from an LLC you created at a 0% interest rate. You can then refinance that loan to a conventional or portfolio loan at the ARV. Check out his post. It's an interesting strategy. https://www.biggerpockets.com/forums/48/topics/460...
@Devin Scott I recently spoke with @Andrew Postell about this topic. He has a great post about how you can refinance quicker. Essentially, you loan yourself cash from an LLC you created at a 0% interest rate. You can then refinance that loan to a conventional or portfolio loan at the ARV. Check out his post. It's an interesting strategy. https://www.biggerpockets.com/forums/48/topics/460...
That sounds a little shady. If it is legal, I'm not sure how long it will be.
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
7y
@Jeremy England that technique is 100% legal. Have spoken with Fannie Mae, Freddie Mac, and the IRS on it. Think of it like if the President of Bank of American borrowed money from Bank of America....could he refinance that loan? And the answer is yes. Yes he could refinance a loan from a company that he owned. Same with borrowing money from a company you own as well. This is something that has been ok for a while now but not a very widely taught method. You can absolutely do this and it is 100% legal to do.