Good evening, I'm running into some issues with the brrrr strategy.  I baught a college rental for $82k rehab cost $15k which bring me at $97k property is worth $150k. Rented it out brings in $4,200 a month.  Went to a bank to get a cash out loan and these are the exact words I looked at your 2017 tax return. The cash flow for those two properties would only support a very small mortgage (less than $50,000). I know that sometimes what is on paper may not reflect reality, but the tax return is all I can go by. Any suggestion ? 

Go to another lender. Perhaps, find some local mortgage brokers. Every lender has different criteria. If you have a local Meetup or REIA, go and talk to other local investors to find out the best lenders in your area.

Happy Investing

Derek Dombeck

I agree with Derek, if I am understanding your situation correctly, I say find another lender. As many say on BP I would try to use a local lender like a credit union. I have also had great success finding credit unions that cash-out refi at 80% on a portfolio loan so they are amazing to deal with.

Do you have any W2 income? Regardless, I would go to another lender, particularly local banks. You very well might have to go through a lot of them to find one that will do it. 

Thats what I'm Doing contacting a few more banks. My confusion is I thought the banks lend on lend 70% - 80% on the ARV thats why when the banker wrote that about my taxes I was lost

If they mentioned your taxes were they talking about your DTI ratio? If the property is worth $150k I dont see why the property could only qualify for a $50k loan. Maybe the issue isn't the property.

Hello @Kerwin Montilla

Banks want more documentation when it comes to seeing that positive cash flow. I would provide an income statement and market comps to show how it has increased.

Also would go to a different lender, every no brings you closer to a yes.

Let me know if I can help with anything.

A Stated income loan maybe an option if the rate works shoot me a msg

@Kerwin Montilla you need to focus on contacting about 20 local community banks and credit unions. If you just do that, you'll find 1 or 2 that will get you what you need. 

All the best!

sjw

Thanks everyone for your opinion. I found a comercial bank that is giving me the following options --LOAN AMOUNT 70% (LTV / LTP aka Loan To Value or Loan to Purchase) $112k AT 7.125% with an origination fee of 1%

or

7% with an origination fee of 1.25%

or

6.875% with an origination fee of 1.875%

with a 321 prepayment penalty

@Kerwin Montilla , while I'm a strong believer in borrowing to the max, that only applies if I'm wisely investing those borrowed dollars for a greater return than it's costing me.

ie. You don't have to borrow $112k, if borrowing just $97k gets you back your outlay!

Especially if you don't know where to get a lot better than 7.125% return yourself! My 2c...

Hey @Kerwin Montilla . Keep up the good work. That looks like a great deal. Is this a multi-family? Did you find it on the MLS? I agree with everyone calling all the local banks. There's got to be someone in that area who can easily do this deal for less than 7%.

You say the cash flow is 4200$/month?

Yes its a College rental
Originally posted by @Matthew Weisberg :

You say the cash flow is 4200$/month?

Originally posted by @Stu Basham : Yes its a college rental 

Hey @Kerwin Montilla. Keep up the good work. That looks like a great deal. Is this a multi-family? Did you find it on the MLS? I agree with everyone calling all the local banks. There's got to be someone in that area who can easily do this deal for less than 7%.

Originally posted by @Kerwin Montilla :

Thats what I'm Doing contacting a few more banks. My confusion is I thought the banks lend on lend 70% - 80% on the ARV thats why when the banker wrote that about my taxes I was lost

 Some banks are conservative and your lender may not be doing anything wrong just that bank has criteria on recently rented properties.

Even on Fannie/freddie conventional you can use recently acquired rental lease agreements (75% of gross - PITIA = net rental income). You'll need to show a copy of the security deposit and lease agreements and use the above formula.

Heck, if you have enough personal income or W2 or even self employment income you dont even need rental income to qualify up to 75% cash out refinance.

Then there are portfolio or community bank lenders who will lend off cashflow and these should be able to use recent lease agreements as well if they understand your business model and are comfortable with it. 

The only ones I've met that had issues with recently rented properties were credit unions on the residential side of lending (not commercial, they are cool).

 With those cash flow numbers you're at like 4% per month rent to value (cost of acq + rehab) so thats superb any banker should be happy to lend on it unless if its short term rental, or non permanent lease agreements because most banks need two years tax returns on those but it doesnt mean you cant use your own income to qualify up to 75% Cash out all day long.

Good luck on your search.

Originally posted by @Matthew Weisberg :

You say the cash flow is 4200$/month?

 He said the rent is $4200/month, not cashflow.

I'd contact more banks, mortgage brokers.

I just did a cash-out refin, 75% LTV, 5.75%. The rate would be better had my credit score be higher.