Best financing option/strategy with no W2 but plenty of assets.

9 Replies

Hi Biggerpockets,

    My family is moving up to Washington State this summer from California after selling out home and one of the things I want to get into is rentals. However, I am in a bit of a unique situation and not sure what the ideal option or strategy is. I have been pseudo-retired for several years after I sold a business and reinvested in stocks, crypto, and multi-family real estate partnerships. I have no W2 but I do have nearly $1m in equities and around 400k cash that I have to invest into either rental properties or purchase another small business. 

- My first instinct is to just buy a SFH or duplex in my area (Kitsap County, WA or Tacoma/Olympia) with cash and call it a day but I don't want to limit myself to that.

   - I looked into portfolio loans on my equities through Well's Fargo but their rates are poor for accounts under $2mm and I'm not sure if I want to take that risk.

- Another option I've thought of is to BRRRR but use my own money as "hard money". I like this idea the best.

    - I've also heard about portfolio loans or other commercial products that I might be able to use. I looked into these products years ago, and got the impression they had high interest rates and were not interested in low loan amounts so I never looked into them further.

If anyone can point me in the right direction to more information on portfolio loans and other commercial loans available, I would appreciate it. And if anyone has any advice on what they think the best strategy is for me in this case, I would appreciate that too. Also, before anyone asks, my purpose for investing in a real estate rental is to be a good steward of my money, maximize the value it brings to society, and challenge myself to grow as a investor by taking on the task of managing a rental.

~Jonathan

@Jonathan Gordon I think BRRRR with your own money is probably the fastest and most effective way to launch yourself. You'll quickly get your money back to go do it again if you want, or pursue some of these other options. That being said, it also has more risk. As long as you have a property you're extremely confident you can create forced appreciation on and you're confident you can get the quality of work you need, then it's a great way to go. Otherwise, you may want to be wary. Good luck!

@Kristel Knittel Thank you, after looking into portfolio loans a little further, I think that is the best option for me right now. I know about a few credit unions in the Kitsap area as well as WaFd bank and plan on calling lenders to try to find something that works for me in the next few weeks. If your lending team can help me as well, Id like to get connected.

I realized after I posted that even if I did a self-funded BRRRR strategy, I would still need a portfolio lender as I do not have w2 income so it seems like that is the route I should go.

~Jonathan

So you can look at local banks and credit unions as they would likely provide the best rates. 

You can also look into DSCR lenders if you are looking for strictly investment properties, as they do not lend to owner occupants even if it is only partly occupied by the owner ( such as buying a duplex and living in one side and renting out the other).

There are also NON-QM lenders which can help qualify based on assets as opposed to a normal W2 income. 

It will come down to what exactly it is you are looking to accomplish.

@Jonathan Gordon you can use your equities assets to help qualify from an income perspective on a convenitonal loan. It's called non-traditional income, and not many lenders know about this or understand it. Lenders can take 70% of your $1m and divide it by 36 months to give you a qualifying income. Then your liquid $400k can go to downpayment and closing costs on multiple properties. You would still be able to have qualifying income without a W2. I have used this strategy a lot with retired clients who are either in between retiring and taking SS or starting 401k withdrawals, but have cash and good credit, just not "traditional income" from a lending perspective.

You can also look to BRRRR or go with a DSCR loan as was mentioned above, but this non-traditional income path is definitnely the most straightforward if you are just looking to purchase several rentals for passive income outside of the stock market.

@Jonathan Gordon

I think @Grant Schroeder is hitting the nail on the head here. Look at creating good debt and not tying up all your cash into this. You can use DSCR or Asset Depletion based loans to get in a property with as little at 20% down based on your credit worthiness. Why pay cash and tie it all up? Use your cash for the down payment and finance the rest. Your rental income will need to cover the cost of your loan (Principal and Interest) each month with insurances, taxes, and whatever recurring expenses you decide to work in. Use Somebody Else's Money to pay the bank! Once you get the equity built up in it, Cash-out Refi and pull your down payment back out with interest earned on your investment. Make sure your rents are covering the new refi loan amounts as well. Then it is infinite return on investment. Ohhhh!!! I get excited just thinking about it!

Nick

@Jonathan Gordon

Equity based credit lines like the one you mentioned at Wells Fargo is my go to. They have many different names, but can be a low cost option if used correctly. Try to keep LTV below 20-30% and you should be fine.

Shop around for a better rate if Wells didn’t offer you a good one.