Possible Refi for a Rental without Employment Verification?

Question

Short:  Can I refinance a rental property to cash out on equity without having a "job?"

Longer version:  This house is in New Orleans - bought a destroyed property after Katrina and rehabbed.  Lived there shortly and then rented it out.  I have been living overseas for the past three years, so therefore have no recent employment history.  I have been renting this house for 3 years - whole time with positive cash flow and zero vacancy.  I'm ready to come home, so to speak; and I'm ready to rehab and rent some more houses.  (1 to start.)

The plan:  If the refi is possible it could net me maybe $30-35k.  The duplexes I am looking at are about $35-50k and would need probably another $50k-60k rehabbing.  Afterwards, I could probably refi with appraisal around $150k, rent one side to nearly cover the note while living in the other, and take cash equity to do it again.

This all seems dependent on the refi... Or should I be posting in the "creative financing" forum?

Jon Holdman · Answer

These stated income loans have gone the way of the dodo, thanks to the excesses of the bubble.  But if you're a US citizen with a job or business overseas, don't you still have to file a US tax return and pay (less credits for taxes in another country) US income tax?  Plus you have this rental in NO, which would necessitate a tax return.

Hard money is going to be expensive.  Too expensive, generally, to use for buy and hold.  Private money may be cheaper than hard money, though not as cheap as conventional or even commercial bank financing.  And you have to track down a person with the money.  If its advertised, its hard money.

As far as that cash out, keep in mind that LTVs are pretty low now.  70 to 75%, typically.  Maybe you can find a lender who would go 80%, though that would be unusual for an investment property.  But a smaller, local (i.e., only a few branches in some area) bank be more flexible than the big guys.

There are a bunch of thread about LLCs and such in the Goals, Business Plans, Entities forum.  Give that a look.

Isaac Isaacson · Answer

Thanks, Arthur.

I guess being employed for the last two years and owning a business in another country counts for nothing...

Questions:
-Two years of w2's is what I heard from my loan broker as well.  If I establish income upon returning, could I get credit before 2 years provided I buy points and have some reserves?

-Is it bad that being indirectly told I can't do this from multiple sources is making me want to do it more and bigger?  As in 2-3 properties to start with.

-Should I start w the private investing / hard money / and LLC questions here or move to a new topic?

Arthur Garcia · Answer

Isaac,

Unfortunately, I think you are going to have problems, at least with conventional financing.  Lenders typically want to see 2-years of W2s.  You may have more luck with local lending institutions, so definitely look into that option.

A few other options for you:

1. private loans - see if you can find a passive investor who would like an equity stake in the property.  Then you can use their capital to purchase more property.

2. partner - find a JV partner who is willing to partner with you.  Have them purchase the property from you and retain partial ownership in exchange for cash flow, equity, etc.

3. hard money - the numbers may not work, especially when you factor in interest rate, points and LTV, but there are investors in my market who do this.

I hope that helps and best of luck to you!

AG