I am working towards purchasing my first rental property in the St. Louis market by the end of 2017. I wanted to see what peoples thoughts and experiences are on funding rental properties without having a W-2 income and without paying cash for the entire property. I am working on wholesaling in the area as well to help cover down payment costs and any closing costs that may come up.
I do have steady income but it is from a business I co-own. I know typically its much harder to get traditional financing without the w-2 income. Thanks in advance for any insight and advice!
@Justin Dossey the answer here will certainly depend on what you plan on doing with this property - are you planning to flip? Buy and hold? Something else?
hi Justin. I think you will find a lot of folks here that share your dilemma. Most people go with hard money lenders. Like you, I could not qualify for Fannie/Freddie type financing due to lack of verifiable income, but I went with local banks. I spoke with a number of them to find out who was trying to build their portfolio of loans in our local real estate market. Each bank had a different profile based upon what segment they were targeting. I found one bank who was trying to build their local multi-family portfolio, so went with them. They asked me to put a larger down payment (nearly 35%), but gave me a preferred interest rate. That was the ante to get established with the local lenders. Everything was based on the profitability of the asset. The banks who make the loans keep them in their portfolio. Typically they demand a 5-7 year balloon.
Once I got financing on the multi family, I thanked the other local banks for working with me. A number of them stayed in touch and we have done 4 more deals with the original bridesmaid banks. Once you build a track record the banks will be there for you. I try to chat with a banker each week. Their desire to lend changes over time, so good to stay in touch. They have money to "sell", so if you can establish yourself as a trustworthy "buyer" of money, you should be in good shape. Good luck!
@Andrew Postell this will be to buy and hold as a rental. My goal is to do this once a quarter over the next 5 years with using the profits from wholesaling to finance down payments.
A traditional purchase using government funding (FHA, Fannie, Freddi) might not work.. They really like their W2 income.
If your non W2 income is reasonable and consistent, go to local banks for in house commercial loans. Your interest rates and terms won't be as good, but they will be much more likely to overlook your lack of a "job"..
Check out the brrrr method on this sight to help you speed up the process.
When you talk to local banks, I would shop around... Different banks have different tolerances. I have banks that lend me millions, and had a bank two years ago flat out deny me. You never know what's going on behind the scenes, so don't get discouraged if one says no.
2 years of tax return can be used as long as income is consistant and enough. They might not use any income from a business that has less than 2 years returns.
Your income from your business needs to show as positive though. I found out the hard way that writing everything off and only showing 25-30k in income doesn’t cut it for lenders. This year I’m only writing off my major expenses so I can show a larger income, and not have issues getting financing.
It’s a catch 22 until you’ve “made it” to the next level.
I would check with the bank your deposits are going to for your co-owned business. If you have consistently deposited revenues into a bank from your business and have 2 years of taxes they shouldn’t have a problem loaning you money. If they do find a different bank to handle your business accounts.
I'm no expert, but I did learn a lot from @Brandon Turner book on No Money Down @ https://www.biggerpockets.com/store/no-money-down-...
There are multiple seller financing options that may help get you the deal without w2 income.
@Charles Mullins I am working on reading this now as well!
I just started doing this myself. I emailed half a dozen banks last week and it got me a meeting with the AVP at bank in St. Charles next week. I plan to sell myself and my plan for investing in St. Louis - and if it doesn't work I'll keep doing it until I find one that does.
If the banks say no, you should try to go with a lender/broker that does no income verification loans. They are more expensive, but still work.
Always go for the cheap money first, but sometimes it's just not available.