How exactly does one get a loan for Investment Property when Self Employed?

21 Replies

So, to give a little back story, my wife and I are moving to Las Vegas from California and I've decided to expand my real estate investment from rehabbing properties to rental units. Over the last 10 years, I've done 6 rehabs and managed to stash away about $500k in seed money for my investment company.

So far I've formed a LLC here in Nevada and purchased my first two properties for $130k total (paid cash). I've completed fixing up the first and have it rented for $750/month and will have the second done this month and should also rent for $750/month. I'm looking to purchase my 3rd property soon, so I figured I'd visit my bank (Bank of America) and see about financing so I could leverage the capital I have and make it go further. I was basically laughed at. They won't provide a loan to any business that doesn't have 250k+ in revenue and at least a two year history. They won't give me a personal loan because I'm self employed regardless of credit score or assets. Ok, guess I need to change banks. I reached out to the SBA, as the SBA504 loan would work perfectly, but they don't provide this type of loan for real estate investment. I spoke to the guy at the SBA and basically he said he would talk to some local banks in the area to see if anyone was interested but they just don't deal with real estate investment anymore.

Now, I know the Las Vegas Real Estate market was crushed and still has only recovered by about half. I get that, but what to do? I can continue to purchase a few additional properties and a personal residence, but by the end of the year I assume my investment seed money will be exhausted. Does anyone have any suggestions on how to keep this train rolling? Ideally, I'd like to purchase a condo for $65000 - $70000 a month, fix it up, then rent it out, and then repeat. For me, I think this is the best way to build my portfolio.

-Christopher

I would interview some local Mortgage Brokers who will have many different sources they can present. It will be a good way to get educated on the options.

from a conventional bank/lender?

with 2 years tax returns showing ur income, however you are employed whether self or other.

from a private/hard money lender?

with lots of assets/collateral, networking, trial & error, and a willingness to pay around 10 points (10%) of the loan amount as well as an interest around 12-15%, maybe more even.

good luck!

Thanks - Hard Money isn't an option for rental properties. Too many points and interest rates are far too high. I'm interested in making myself money, not someone else. The two years of tax returns do not apply, because of my 'profession change'.

I'm looking into local people right now to see what is available. So far no real luck.

This is an interesting topic and definitely anyone who is building their real estate business in the long run will run into this problem. 

My team actually have just formed a relationship with a new local lender that we hope to bring a lot more options to our clients versus the traditional banks  they have 8 underwriters right in the office so they have been speedy with responses so far. I was actually going to go in next week to talk about my own options for investment loans, if it is ok with you @Christopher Brainard  I would love to bring your case up and see if they have options you can explore as well. 

I'm interested in any input from the rest of the community regarding finding OPM to invest with as well. 

If you're looking for buy and hold investor money, there is a lot of that out there including US Commercial, but you're surely not going to pay Bank of America rates.  If you've just changed professions and location, you're much more of a risk, particularly on an investor property, than you would be on a traditional mortgage.

Dodd/Frank was not your friend on this one.  Going stated income used to be the way to go for this type of scenario, but it's against the law to not use income and there is no one that comes close to Fannie or Freddie that will touch it.  

I spent 15 years as a Loan Officer, doing commercial and residential loans. I can tell you, I have had many relationships with local lenders (MUCH smaller than Bank of America is the way to go), but even they will require 2 year track record.

I tell real estate investors all the time... don't quit your day job early. Unless you are great at getting private money at attractive rates you are going to need the banks money.

He who has the gold makes the rules. (the real golden rule)

If you need the banks money, you need to play by their rules.

Originally posted by Account Closed:

with lots of assets/collateral, networking, trial & error, and a willingness to pay around 10 points (10%)

Hard money usually has points, but I have never seen 10 points.  There should be plenty of hard money lenders with lower points than that.

Hi @Christopher Brainard You can try looking to people that you know for funding, If your credit is decent you can try a personal loan or a general business loan, a Home Equity line of credit, or cashing out a 401k or Roth IRA. You can also visit your local real estate investment clubs as funders typically attend and you can partner up with some of the movers and shakers, look into Crowd funding websites, or Maybe look into creative owner financing as well in which no bank would be involved if the owner is financing.

For a investment property the only thing is needed is  650 fico to go stated income

Howard Stokes is right.  Stated is your only alternative and like I said, there is a lot of it out there including US Commercial.  Rates are going to be around 9% on an 8 year fixed with a 30 year amortization and it will cost you anywhere from 2 to 4 points.  650 middle credit is required for that product, but your minimum loan amount is 100K.  Not sure of your credit situation.

Of course, there are no points or fees other than appraisal and credit report up front.  We are paid on performance.

Stated Income loans are nearly a thing of the past,,if you have perfect credit and lots of assets, you might be able to get a loan from an individual, but today banks have to  be able to prove you can pay them back (that sounds kind of weird doesn't it).

There are people out there that will 'find you' a loan,,they will take your $5k or so and disappear...look for high net worth individuals you know that have money in savings/money market,,they are making virtually nothing on their money,,talk to them about taking property as collateral on a note,, 

As far as changing professions,,that really only kills you on mortgages, you might be able to get a banker to go along with your income on a personal note, just not a mortgage.


 Not sure what OP mean (2 years of) 'tax returns do not apply', nor is looking into 'local people'. Family? Well yeah.. blood is thicker than... water!

Last i checked, UncleSam does not permit persons/artificial entities to skip yearly tax returns - unless they made so little in the past year (or past 2 consecutive years) that they did not even report/pay.. in which case if there isn't even income in the past 12-24mos a lender would then look at assets/collateral if there are any, as a potential security in event of default, but would charge higher interest if there is no annually documented income but only assets/collater.

There is a saying that a banker will hold an umbrella over you when it is nice and sunny outside.

As soon as the rain starts coming they run away! lol

You need a local banker that keeps paper in house where the loan committee can look over your unique situation for a chance at being approved. See if any of the board of directors or the bank president is a real estate investor themselves that opened the bank. They will usually be more understanding of your situation or have private contacts even if they can't do the loan.   

Thanks for all the feedback.

It sounds like a local lender is going to be the key for what I want to do - if anyone has any suggestions for the Las Vegas Area, feel free to send them.  I'll also take a look at the investment clubs in the area, there seem to be a few.

The Stated Income sounds like a good alternative, but the properties I'm looking at are below the 100k minimum. Credit isn't an issue, my middle score is 773, so I don't think that will deter anyone from lending to me.

As far as changing professions goes, I knew it wasn't optimal when I did it, but I wasn't able to commit sufficient time to complete the house I was working on otherwise. I gave up my six figure a year job in January of last year to work on the property.  I completed the rehab mid last month and sold the property in 5 days, which yielded a $260k payday. I would hope that I can find a reasonable bank that can see where that was a good idea ;)

-Christopher

Sorry for the dumb question, but if you've got $500K stashed in savings, why do you even need a loan? Isn't there anything out there that you could pay cash for?

Community banks and credit unions are more than likely to lend than the the big banks.  Also you can start to talking to the seller about owners' financing with a down payment of 5% to 50% of the purchase price with a 2 to 10 year mortgage fully amortized or interest only loan with a 6 month to 15 year payoff.  You will come out better if you do your income returns for 2013 and 2014 for the banks and credit unions.

Also lendingclub.com, prosper.com and other crowdfunding sites that may work for you.

Originally posted by @Julia Pinelo:

Sorry for the dumb question, but if you've got $500K stashed in savings, why do you even need a loan? Isn't there anything out there that you could pay cash for?

Of course, I've purchased my first two properties cash, but if I continue to do that, I can only purchase 6 - 7 units. There is nothing wrong with that, but if I can obtain financing, I can make my money go a lot further.

Owner financing is a good point. I'll have to discuss that with my realtor and see if that could be used as a viable means to purchase property in the area. 

With the owners' financing you can get a 5 to 8% rate. 

@Christopher Brainard I was in a tough situation in 2009. Newly self employed with a three family that was fully rented and looking to buy a new primary as well. When I went to prequalify my mortgage broker said it would be easier to find a job and get 6 months of w2s....or wait 2 years. I found someone to loan me money to buy the primary.

Then I found a job working for a big real estate company(with a salary). Six months later we did a refi on the primary. I stayed on with the real estate company for 3 years and I learned a bit and kept my head in real estate. The guy that owned the company had bought a building for 1 million in 1981 on Broadway in NYC. While I was working for them they were turning down offers in the 500m range.

I didn't have 370k in cash so that puts you in a really good position. I'm sure you'll make the best of it!

I was talking to my loan officer at BofA yesterday. They insist on going off of the real estate earnings shown on your tax return. I own my properties free and clear but my wife  also owns real estate which is mortgaged.

Although I was applying for a loan based on my own portfolio I was told I would likely be denied because of real estate losses  on our  joint tax return that are almost entirely due to mortgage interest that my wife claims on her property.

Ya out here in Las Vegas I have never paid more than 4 pts for a hard money loan. So that could be a short term option until you're able to refi.

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