Cash-Out Refi Advice - stuck with a lender on a free & clear prop

[Marina Croce]

Hi Everyone - first time posting here. Nice to meet you and hope everyone is safe and staying healthy! 

I have a client who I am working with on getting a property that is going to auction at the end of this month. He owns a rental property free and clear and the lender has no issue giving $300k in a cash out refi but he is running into problems with his income. He is a CEO and large shareholder for a biotech company that is funded by venture capital and government grants, until they get their product approved by the FDA. This is causing them to show a loss on their taxes which seems to be a sticking point for lenders. Their monthly income is significantly higher than their monthly debt and their rental property is paid off. 

My question is if anyone has come across this issue with lending and what you have done to help your clients overcome this? The only other option we can think of is to do a hard money loan but it would be a shame not to use some of this equity built on their first rental. 

[Marty Johnston]

@Marina Croce this can be a common issue when looking to a conventional / residential loan. It sounds like he may need a bank-alternate type lender who does not underwrite tax returns or income. Is the property an investment property or a primary/second home?

These bank-alternate lenders won't need Tax Returns, pay stubs, W2s etc. Their UW will be based on the asset, rental income to service the debt, and credit for certain pricing and leverage. Rates here are between 5-6% vs the high 2-4% range you'll see from banks or credit unions, but it could get the job done. Still 30-yr Fixed options and capped at 75% LTV likely on a cashout.

Is this something that would help his scenario?