Self employed income too low

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Self employed income too low

David Zachery
Louisville, KY · Member since 2014 · 60 posts · 3 votes

My wife and I are both self employed so on paper we don't show enough income for a loan for a property.  This would be my first property. I was looking into a turnkey rental.  Ideas?  Keep in mind I'm new here and so would prefer details please.  

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Joshua D.
Investor · Columbus, MT · Member since 2013 · 1k+ posts · 1k+ votes
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How many banks have you shopped at?  Do you have any cash? If you income is to low are you sure "turnkey" is the way you want to go? 

I would encourage you to seek out at least 3-4 small time local banks and ask them how the can help you in you situation, you might be surprised at the creative ideas you can come up with. 

We baught our last forclosure at a huge discount from market value for only $1,800 out of pocket. Thanks to our local banker! 

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  • Joshua D.
    Investor · Columbus, MT · Member since 2013 · 1k+ posts · 1k+ votes
    11y

    How many banks have you shopped at?  Do you have any cash? If you income is to low are you sure "turnkey" is the way you want to go? 

    I would encourage you to seek out at least 3-4 small time local banks and ask them how the can help you in you situation, you might be surprised at the creative ideas you can come up with. 

    We baught our last forclosure at a huge discount from market value for only $1,800 out of pocket. Thanks to our local banker! 

    4Reply
  • Andrew S.
    Investor · Raleigh, NC · Member since 2013 · 1k+ posts · 708 votes
    11y

    So, all the bank will care about is what's "on paper" - that's why they will want to see your tax returns.  If that's not enough to secure a loan, then you will likely need to go with 

    1. Hard money loans (based mostly on the asset, less on your credit/income though requires "skin in the game")

    2. Private money (people you know, friends, relatives,etc.)

    3. Seller-financing

    Search for the bolded terms here at BP - tons of info

    Also:

    @Brandon Turner has a new book out on this topic (I haven't read it myself, but I'm given to understand it's quite good)

    2Reply
  • Shawn McenteerBusiness Member
    Realtor · Boonton Township, NJ · Member since 2013 · 2k+ posts · 1k+ votes
    11y

    I agree with @Joshua Daniels.  Keep shopping around. I know many self employed that purchased at a young age but they did so through non standard lending institutions.  Large banks and lending institutions have algorithms they must follow and rarely bend away from making investing in general though with them.

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    2Reply
  • Jesus Lara
    Real Estate Agent · Brea, CA · Member since 2011 · 4 posts · 1 vote
    11y

    David,

    If there is other income that isn't on paper, I would make sure to report that income on your taxes to maximize the chances of getting the loan you want.

    0Reply
  • David Zachery
    OP
    Louisville, KY · Member since 2014 · 60 posts · 3 votes
    11y
    Originally posted by @Joshua D.:

    How many banks have you shopped at?  Do you have any cash? If you income is to low are you sure "turnkey" is the way you want to go? 

    I would encourage you to seek out at least 3-4 small time local banks and ask them how the can help you in you situation, you might be surprised at the creative ideas you can come up with. 

    We baught our last forclosure at a huge discount from market value for only $1,800 out of pocket. Thanks to our local banker! 

     Holy Cow!   Well then lots more to rehab?

    0Reply
  • Steve Osowicz
    Real Estate Broker · Louisville, KY · Member since 2014 · 121 posts · 91 votes
    11y

    @David Zachery If you want to try and go through a bank, try River City Bank they do work with investors and have two products, one for flips and one for hold.

    Like @Andrew S. said, those are your alternative:

    1. Hard Money - Needs a down payment - decent credit - higher interest rates, downtown Louisville is Action Loans who is a hard money lender.

    2. Private Money - see Andrew's comment above

    3. Seller Financing - Make sure if you go this route, you get some help. You will want to have the deed recorded, if the seller has a mortgage, this can be more complicated since they may have to agree to the loan. I have seen instances where someone was doing "seller financing" but the deed was not recorded, the buyer was making payments, but the seller had stopped making their payments, lost the property in foreclosure and the buyer lost out since the deed was not recorded. 

    1Reply
  • David Zachery
    OP
    Louisville, KY · Member since 2014 · 60 posts · 3 votes
    11y

    @Andrew S. I've been thinking about getting his book but hadn't heard reviews.  Thank you.  

    0Reply
  • David Zachery
    OP
    Louisville, KY · Member since 2014 · 60 posts · 3 votes
    11y

    I've only tried one bank and that was recommended by the investment group that helped me find the property.  

    Thank you @Steve Osowicz , I'll look into river city and action loans. 

    0Reply
  • David Zachery
    OP
    Louisville, KY · Member since 2014 · 60 posts · 3 votes
    11y

    So am I correct in that every time these lenders look into my info, they pull my credit?  And therefore its a hit?

    0Reply
  • Taylor Chiu
    Real Estate Agent · Salt Lake City, UT · Member since 2014 · 473 posts · 230 votes
    11y

    @David Zachery Get the book, it's definitely worth it!

    0Reply
  • Steve Osowicz
    Real Estate Broker · Louisville, KY · Member since 2014 · 121 posts · 91 votes
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    A lender would be better suited to answer that but, my understanding is that  credit being pulled by related companies i.e. mortgage companies would make less of an impact as it is due to you "shopping" for a loan. I believe also the time frame is a consideration, so if you apply at several mortgage companies within a 30 day time period would be less of an impact. The problem would be if you applied for a mortgage, a credit card and a loan for a boat all around the same time. 

    1Reply
  • David Zachery
    OP
    Louisville, KY · Member since 2014 · 60 posts · 3 votes
    11y

    Thanks @Steve Osowicz

    0Reply
  • Mike H.
    Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes
    11y

    A hard money lender won't solve your problem though. 

    1) They don't lend to owner occupant deals (i.e. buying homes that are going to be your primary residence). 

    2) Their loans are meant to be short term only (6 to 9 mos) with the intent that you will either flip it or refi to get them out of their loan. They aren't going to carry that loan for you like a regular conventional loan. 

    So if you can't qualify for a loan today, you probably don't want to buy using hard money as you won't be able to refi them out of their loan and while most would typically extend the loan, they won't do owner occupant and won't extend it forever. Eventually they'd probably foreclose.

    Your best bet is a small local bank or credit union that will look at your business and be able to get a better sense of how much money you're actually making compared to how much you're reporting.

    4Reply
  • David Zachery
    OP
    Louisville, KY · Member since 2014 · 60 posts · 3 votes
    11y

    So @Mike H. , a thought occurred to me. We bank at a credit union. In theory I could get a HELOC from them and a loan for the difference of the prop? Or is that silly?

    0Reply
  • Mike H.
    Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes
    11y

    A Heloc AND a loan for the difference?  Are you saying you would get a Heloc on your primary residence that you own today and then use that as the down payment toward a purchase of your first investment property?

    If so, then I would suggest yes. A credit union would be much more willing to look at your business income and be more open to accepting the actual numbers than the reportable numbers.  Not saying that they would definitely do the loan. But credit unions and local banks would be your best bet to take the time necessary to understand your business and be able to decide whether the income makes sense.

    0Reply
  • Linda King
    Flipper/Rehabber · Fort Mill, SC · Member since 2013 · 73 posts · 12 votes
    11y

    Hi David and Welcome to BP!

    Lot's of good feedback and there are many people to help out..

    We did our first purchase with private money and offered a higher % to our contact just to get started... Credit unions and alternative private are how most of our wholesalers have done their deals too.

    I would also recommend talking to your local RE contacts - are you a member at a local REI club???

    I wish you well in your hunt!

    Linda

    1Reply
  • Jean BolgerPro Member
    Aurora, CO · Member since 2012 · 2k+ posts · 1k+ votes
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    Originally posted by @David Zachery:

    So am I correct in that every time these lenders look into my info, they pull my credit?  And therefore its a hit?

    You want to minimize the number of hard pulls, for sure. So don't run out and apply with a bunch of lenders at once. Go talk to the lenders in person, and take a copy of your current credit report and last two years taxes. Tell them what your current FICO is (some credit card companies are providing this info free these days, or you can pay to get it online). Make it clear that you are not applying for a loan right that instant, but that you're interviewing them about their lending criteria and therefore the possibility of them working with you in the future. You could take along the projected financials of that property you were trying to buy as an example of the type of project you'd be looking at. 

    Being self employed is a drag when it comes to banks, unfortunately

    3Reply
  • Barbara Long
    Martinsburg, PA · Member since 2014 · 67 posts · 4 votes
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    @David Zachery  I have to say something here....I've been self employed for over 1/2 my lifetime. Don't you wish now you would of showed some income those past years on your books? Lesson learned. School of hard knox. Been there done that. What about a home equity loan?

    A Car, Boat? or a blanket mortgage with no money down.  What about this web site www.peopletopeoplelending.com   Also folks!!You can lend money on this site too and make money for yourself! CHECK IT OUT! THERE ARE OTHER SITE TOO! 

    0Reply
  • Nik S.
    OH · Member since 2014 · 454 posts · 227 votes
    11y

    Hi David, I too am self employed and at an earlier stage, I too showed very little income on paper. It does effect you when it comes to banks very badly...I am still working on getting much more on "paper". 

    My suggestion to you is to have a credible co-signer assist you. Now, co-signing for someone on an investment property isn't truly sought after, even by family or friends. I actually don't recommend it! However, given the deal is a money maker, suggest putting the co-signer on the LLC (or deed) / draw a contract to add them as a partner per say, can be % based. Depending on how your structure this, give them a certain $ amount or % of profits when you start earning.

    I believe if your going to co-sign, you have to have some reassurance in the deal. Better yet, see if they want to be a silent partner and put some skin in the game... you get the loan, you can make some money with their money, you gain experience AND legit income on paper! In the meanwhile, you aren't tying up all your cash.....! It's a win win deal.

    Make sure you deal is a winner before selling your deal to your Co-Signer / Partner first!! 

    2Reply
  • David Zachery
    OP
    Louisville, KY · Member since 2014 · 60 posts · 3 votes
    11y

    @Barbara Long  that site didn't work, but sounds interesting.  Good details @Jean Bolger and @Nik S. , I like the silent partner idea.  Seems a lot like private money.  

    0Reply
  • Barbara Long
    Martinsburg, PA · Member since 2014 · 67 posts · 4 votes
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    just google people lending people money..dif links come up.

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  • Nik S.
    OH · Member since 2014 · 454 posts · 227 votes
    11y

    @David Zachery 

    Actually, it's not intended to portray "private money". Private money sounds more on the lines of utilizing a hard money lender. If I were in your shoes, I would pursue a family member or a close relative/friend. 

    I am unsure of your purchase cost however at any dollar amount, this day and age individuals are very cautious with spending & loaning money. 

    I was trying to suggest a route that avoids high interest rates and essentially all your cash. 

    Find a friend/family who is willing to "participate" in your deal. Get your data in order and make sure you have all your t's crossed & i's dotted. Present that deal to your preferred relation and ask them to finance your deal (jointly sign), share the downpayment. Not sure on what your buying but say you are getting a good deal on a SFH and you can cash flow $400 a month after paying mortgage. Split the cash flow with the partner. Not only are you and your partner gaining equity in the property (mortgage payments) but also monthly cash flow for doing nothing. You have to be willing to do 100% of the work even though you won't be reaping 100% of the profits. Maybe even you put down the full downpayment & guarantee him % of the cash flow. There are finer ways to do this but your at a position which requires a little extra efforts/work to get started. Like I said, I am unsure of your potential ROI/CoC returns or intent but network with your family/friends. You may be surprised!

    1Reply
  • Rob Donovan
    Rental Property Investor · Dubuque, IA · Member since 2014 · 41 posts · 4 votes
    11y

    Have you tried looking into a commercial loan. You may have to pay a little higher rate and put a little more down, but it should be easier to get a loan being self employed. I have been in this situation also. With rates so low these days, even a full percent higher is well worth it. Just make sure the numbers work out in the end.

    0Reply
  • Curtis BidwellPro Member
    Rental Property Investor · Olympia, WA · Member since 2014 · 777 posts · 744 votes
    11y

    Don't limit yourself to banks/CU's.  Find a reputable, investor friendly, mortgage broker.  A sharp broker can help position your application in such a way that it makes sense to a lender while still being honest with your circumstance.  I have used several over the years and found that some of my 'limited' income was offset by building back in deductions that didn't count against my income.  The broker built it back in and I began to look better on paper while still gettng my tax benefits. Take your taxes and supporting documents into a broker and ask what they can do for you.

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  • Andrew Davis
    Investor · Asheville, NC · Member since 2011 · 833 posts · 499 votes
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    Hey @David Zachery 

    My wife and I are in exactly the same situation.  After much shopping and reaching out for referrals, we've found a local mortgage broker who works with investors.

    Our issue was the 2 years worth of tax returns.  He found us a loan program that will go off one years tax returns, and we are able to use 2014's returns alone to qualify for the loan.  Now, this means we will be paying some taxes, as there are certain things we've chosen not to deduct in order to show the income needed to qualify.

    Hope that helps!

    2Reply
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