How do you get a refi after you leave your W-2 job?

27 Replies

I can foresee a real estate path that allows me to leave my W2 job and the thing that keeps rattling around in my mind is that having a W2 makes getting a conventional loan possible/easier?

For those that leave a traditional W2 job and replace it with a combination of predictable investment income (rental income) and unpredictable real estate income (wholesaling, agent commissions or similar), how do you continue to get the financing you need to refi a BRRRR deal?

You must have two years of tax returns to show your income from other business ventures. I was working my W2 job while investing in real estate, wholesaling and selling turnkey rentals. After about 3 years of solid income from those efforts I quit my W2 and haven't had any issues qualifying for loans. The key is making sure you have at least 2 years of tax returns to show income from real estate! Keep in mind that you likely won't be able to qualify from rental income alone. You should be showing very little income if any at all on rental properties. The income will come from the active real estate activity. Wholesaling, fixing and flipping etc.

@Robert Kirkley it is best to check with a lender for the exact rules but to my knowledge it doesn’t have to be the same organization. It does have to be in the same career field. So if you make 100k in year 1 wholesaling and then quit wholesaling to start a bakery, even though you make 100k in year 2 with the bakery that is not 2 years of tax returns in the same field. But if you made 100k in year one in wholesaling and then quit wholesaling but started fixing and flipping. Your income would qualify! 

Originally posted by @Matt Ferch :

I can foresee a real estate path that allows me to leave my W2 job and the thing that keeps rattling around in my mind is that having a W2 makes getting a conventional loan possible/easier?

For those that leave a traditional W2 job and replace it with a combination of predictable investment income (rental income) and unpredictable real estate income (wholesaling, agent commissions or similar), how do you continue to get the financing you need to refi a BRRRR deal?

Any income that is variable such as your money you make running your own business, independent contracting work or commission based income of any sort is going to require 2 years of tax returns before a lender will consider it as part of your DTI.

Originally posted by @Matt Ferch :

I can foresee a real estate path that allows me to leave my W2 job and the thing that keeps rattling around in my mind is that having a W2 makes getting a conventional loan possible/easier?

For those that leave a traditional W2 job and replace it with a combination of predictable investment income (rental income) and unpredictable real estate income (wholesaling, agent commissions or similar), how do you continue to get the financing you need to refi a BRRRR deal?

Use a portfolio lender. Rates and fees are higher, but you can get a 30 year fixed or ARM with no income verification.

You might also consider a mixed strategy. A part time job and full time real estate career might be the answer. Or alternatively, leveraging the W2 job of a partner while you work on real estate is another solution. The bottom line is there are several good strategies, and the world is your oyster!

Originally posted by @Stephanie P. :
Originally posted by @Matt Ferch :

I can foresee a real estate path that allows me to leave my W2 job and the thing that keeps rattling around in my mind is that having a W2 makes getting a conventional loan possible/easier?

For those that leave a traditional W2 job and replace it with a combination of predictable investment income (rental income) and unpredictable real estate income (wholesaling, agent commissions or similar), how do you continue to get the financing you need to refi a BRRRR deal?

Use a portfolio lender. Rates and fees are higher, but you can get a 30 year fixed or ARM with no income verification.

I have great credit but no W2 income would I have to show my tax returns on a commercial loan?

Originally posted by @Account Closed :

I have great credit but no W2 income would I have to show my tax returns on a commercial loan?

No.  If it's a portfolio loan, not tax returns are required.  The loan is based on the asset and guarantor's credit. 

Originally posted by @Account Closed :

@Stephanie P. How would I find a portfolio lender for Texas also do I have to show them cash reserves and what kind of down payment?

Some portfolio lenders require cash reserves, some do not.  It depends where the broker is going to send it.  If reserves are an issue, they just won't send the loan to the one that requires it. 

Hey Matt! Good question. If you already have an LLC set up for your investments you can actually issue yourself a W2 as an employee if you elected as an S-corp.( Possibly as a regular LLC as well). This shows stable income to your lender but obviously you want to have established payments to yourself before approaching since some lenders depending how strict their policies are might go back 6 months to a year if they find out you are also owner of the LLC. I am only speaking from experiences I had hope this helps!

Originally posted by @Peter T.:

As an FYI - a portfolio lender might get you a 30 year mortgage but that rate is going to be 6.5-7.5%

Yes, but with no W-2 there are few other alternatives.

Originally posted by @Nick Calamia :

Hey Matt! Good question. If you already have an LLC set up for your investments you can actually issue yourself a W2 as an employee if you elected as an S-corp.( Possibly as a regular LLC as well). This shows stable income to your lender but obviously you want to have established payments to yourself before approaching since some lenders depending how strict their policies are might go back 6 months to a year if they find out you are also owner of the LLC. I am only speaking from experiences I had hope this helps!

If you own more than 25% of the corporation, you should be required to show 2 year's tax returns (personal and business).  If you didn't, there are probably a lot of folks on BP that would love to know who that lender is.

Yes @Stephanie P. that is true my apologies thanks for correcting me, I forgot to mention that part for traditional financing. However I do know some of my buddies have used traditional, portfolio and even hard money lenders that it was not required to disclose ownership. Every lender is different that is why networking is an integral part of real estate investing!

Originally posted by @Nick Calamia :

Yes @Stephanie P. that is true my apologies thanks for correcting me, I forgot to mention that part for traditional financing. However I do know some of my buddies have used traditional, portfolio and even hard money lenders that it was not required to disclose ownership. Every lender is different that is why networking is an integral part of real estate investing!

No apology necessary.   I was sincerely wanting to know who would do that.  2 years income documentation for any Fannie or Freddie loan is standard.  There are several lenders that would only require bank statements and several portfolio lenders that wouldn't require anything.

@Peter T. , @Matt Ferch and Account Closed - Almost all of the lenders I use for my personal portfolio will loan based on the financials of the property and not the borrower.  Most of them lend nationally.  It took years to find all of these lenders but it was so worth it.  Getting to 127 rentals with no W2 income and tax returns that showed losses made finding these types of lenders a necessity.  Don't get locked into the mentality that you NEED a W2, or stellar tax returns.  It can be done without.

Originally posted by @Peter T.:

As an FYI - a portfolio lender might get you a 30 year mortgage but that rate is going to be 6.5-7.5%

@ Peter T. 

Are those rates horrible? On my first purchase, we used FHA and the rate was 11%. We were excited to refinance to 8%. Those were owner occupied rates (I know, showing my age:).

To be clear, bank financing is way cheaper and no one's hiding the portfolio rates and it's true that portfolio rates are higher, but let's really look at what they are and not vilify some really great rates because they compare unfavorably to today's rate compressed market.  The point is, we are still in a period of historically low interest rates, even for portfolio.

Originally posted by @Stephanie P. :
Originally posted by @Peter T.:

As an FYI - a portfolio lender might get you a 30 year mortgage but that rate is going to be 6.5-7.5%

@ Peter T. 

Are those rates horrible? On my first purchase, we used FHA and the rate was 11%. We were excited to refinance to 8%. Those were owner occupied rates (I know, showing my age:).

To be clear, bank financing is way cheaper and no one's hiding the portfolio rates and it's true that portfolio rates are higher, but let's really look at what they are and not vilify some really great rates because they compare unfavorably to today's rate compressed market.  The point is, we are still in a period of historically low interest rates, even for portfolio.

When your rate was 11% I highly doubt real estate value were where they're at today. That's not the best example. I understand what you're saying and some people will use it (heck I might myself one day) but people should be warned it's not the 4% rate their accustomed too and when I hear rates of 8%+ for 30 year money I laugh those guys off the phone.