Fredericksburg, TX · Member since 2017 · 51 posts · 36 votes
Hello all. Ive recently quit my 9-5 to go full time in RE investing. My plan is to do some flipping and slowly transition to the BRRRR strategy to bring in some passive income. I have roughly just over $100000 to get started investing. I have a decent credit score at 700 and have no debt. I own my cars and home. I feel pretty certain that conventional lenders like banks will be out as far as financing deals. So I guess my question is about brrrr. What will my options be for refinancing a brrrr house without proof of income? Will I have to show I did well with the flipping for a couple of years before I could be refinanced? Or are there other options?
Investor · Bristol Borough, PA · Member since 2016 · 135 posts · 53 votes
9y
Mark Russell
This is a good question that I'm also interested in too. I've heard that you can use your property's income as "income" to get a loan but there is a seasoning period where you have to have that rental income coming in for a year or so before the bank will count it as income.
I'm not sure if that applies to both residential and commercial. A commercial loan may be more forgiving on that (if they require it at all). Portfolio lenders may also may be a good option. Essentially you'll need to find lenders that will lend on the property more so than your personal financials.
On one of the BP podcasts they talked about a strategy where, if you buy a property in cash, you can refinance out in a few weeks. I believe it is called delayed financing.
Not sure how much help this provided. I'll be checking back here for some info also.
You'll need 2 year's of self employment to qualify for conventional financing, but there are no income verification options out there for you. The rates are higher than conventional and there are generally points, but once you find the lender, the qualifications are much easier.
There are companies that occupy the space between hard money and banks. They don't sell to Fannie or Freddie and they make up their own guidelines, but the rates aren't as steep as hard money and in many cases, they don't require income, just entities.
Fredericksburg, TX · Member since 2017 · 51 posts · 36 votes
9y
@Marc Izquierdo i have also been looking into portfolio lenders as well. I didn't know that some will loan based on the deal and not so much the personal financials. Good info thanks
Investor · Bristol Borough, PA · Member since 2016 · 135 posts · 53 votes
9y
Mark Russell
A few months ago, I posted a discussion about refinancing when you are maxed out (i.e. You can't get anymore conventional bank financing - debt to income ratio is too high). I think this would also apply to having no income (debt to income ratio would be undefined - dividing by zero)
There were some good posts there. Have a look. Hopefully it helps.
Future Refinancing Strategy on the BiggerPockets forums
http://www.biggerpockets.com/forums/50/topics/459465-future-refinancing-strategy
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
9y
I would get the 9-5 back. There is NO product that compares to the 30 year traditional mortgage. Starting a business predicated on your ability to borrow money while simultaneously cutting yourself off from the cheapest money source is not going to make things any easier. All those other lending sources mentioned by everyone else are much more expensive and have substantially less friendly terms.
After running through your 10 mortgages would be the time to look towards cutting off the job.
Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
9y
@Mark Russell Consider looking into one of the national asset based lenders. They occupy that space that @Stephanie P. mentioned earlier. Not as expensive as hard money, but less hoops to jump through when compared to traditional financing. Of course the rates and terms aren't as good as the conventional loans.
Good thing is they are primarily concerned with your liquidity, credit, investing experience, and the performance of the deal.
Real Estate Professional · Dothan, AL · Member since 2017 · 22 posts · 14 votes
9y
going to be limited... you shouldve set up an LLC years ago and then set yourself or your wife as an employee with a w-2, etc. I did this on my primary home recently. My wife is our LLC's only employee and gets a monthly paycheck from that company. Her income was just enough to pay our bills at the time. The home we wanted to buy was more expensive and required her to make a higher salary... so we made a little adjustment in quickbooks and BOOM... after a couple months of paystubs to verify and a couple years of our joint tax returns we were easily qualified.
Lender · Chicago, IL · Member since 2015 · 608 posts · 70 votes
9y
@mark as most were saying here you should focus on getting financing with little to no docs. The rates are higher than conventional but after 2 yrs you could refi.
Fredericksburg, TX · Member since 2017 · 51 posts · 36 votes
9y
Thanks all for responding to my question. At this point going back to my 9-5 is just not an option so I'm glad to know there is something in between conventional lending and hml like what Stephanie Potter mentioned. I think we pretty much decided that's what we are going to go after. And then after a couple yrs just refi at that point. All good points thanks again!
You mentioned that after running through your 10 mortgages would be the time to look towards cutting off the job- so then go LLC from there? Curios to know how to proceed from there....Thanks.
You mentioned that after running through your 10 mortgages would be the time to look towards cutting off the job- so then go LLC from there? Curios to know how to proceed from there....Thanks.
Jorge
It's important to note two things.
You won't be able to get a traditional residential 30 year mortgage in an LLC. Even if you are under your 10 mortgages.
You will be capped at 10 traditional residential 30 year mortgages.
With that being mentioned after you have exhausted your 10 traditional residential 30 year mortgages you will want to look towards commercial financing. At this stage of the game you will want to purchase all of your properties in an LLC.
Another thing that is important to note that commercial financiers don't really like residential properties in their portfolio. There are some that do large refinances of portfolios that have several homes in them. Typically they loan around 70% of the value of the portfolio with a minimum loan amount of $500k. So you'd need to spend about $715k in cash on residential properties before you utilize this type of loan. With that said what I recommend doing is going after commercial properties once you have hit your 10 traditional residential 30 year mortgages. What that would entail would be retail space, industrial and the most popular multi family consisting of 5 or more units.