BRRRR without proof of income?

Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes

How would I be able to buy a property initially and cash out refinance utilizing the BRRRR strategy if I cannot prove income right now? That's the biggest hurdle I'm experiencing in planning for my future cash flow properties at the moment. I have a decent amount of cash saved up but even if I used that to buy a property outright I'm still going to run into the problem of getting my cash back out to reinvest into the next property, correct? Is there anyway around this? Creating an LLC and getting a commercial loan instead of trying to get a conventional loan in my personal name? HELOC? What should my strategy be? I just don't want to end up stuck with the one property without being able to roll that cash over into the next one to keep growing my portfolio.

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Jeff Wallace

Rental Property Investor · The Woodlands, TX · Member since 2014 · 345 posts · 288 votes

@Brian Garrett

This is why the W-2 income is so important when just getting started -

With most rental property price points - and since you have good credit, money in the bank, and no debt - you could qualify for a mortgage with a decent part time job at Lowe's or Home Depot -- W-2 income will carry a ton of the weight you are struggling so hard to lift and make financing the property pretty painless... Once you are an established investor, with multiple properties showing income, it still isn't easy to qualify for conventional mortgages as a self employed borrower -- Lenders LOVE to see the W-2 --

Remember when you played Monopoly as a kid - "Passing Go" was the key to getting started - Later you were making so much money from rental income that you didn't need to Pass Go (collect a salary). Real life investing is exactly the same.

Good Luck

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Brian Garrett
OP
Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
9y
Originally posted by @Isiah Ferguson:

I'm currently almost in the same siuation as you. I had the funds save up from playing professional sports only for 1 year and released. Initially I was going to banks and trying to get a loan. No bank would give me the loan because l only played for 1 year and I only had 1 year of W2. Most banks reqiure 2 years of W2. I went ahead an cashed out on a duplex for 100k. Probably wasn't the smartest decision but I'm determind to get the ball rolling. I'm looking to refinance to get my cash back out and to start the BRRRR strategy to expand my protfolio. Now, I'm collecting monthly rent for about 7 months up to date and also I started a full time job which is a little above minimum wage, which I've been working for 4 months. Hopefully after 1 year instead of 2 years of working and collecting rent I can refinance, get my cash back at 75% or 80% LTV and start to expand my portfolio. The only other option I knew of was Lima One Captial bank. They will lend to lenders based on their assets they have. Lima One will do a 30Y/F but their interest rates are at 8% in which I asked the BP family and people responded saying that was too high of a rate.
This is great information Isiah. Thanks for sharing. You sound like you are in a very similar situation as myself only you are actually better off since you have 1 year of W-2 and you have a job now. We seem to have the same strategy in mind. The problem is I don't want to wait 12 months or possibly longer to cash our refinance to get my 75-80% LTV back out and grow my portfolio. Lima One sounds like it could be a good option. Was it strictly 8% interest or was there more to the deal? I don't think 8% interest alone would be enough to scare me away IF it was my only option.
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Michaela G.
Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
9y
@Isiah Ferguson , while 7-8% may seem high, it might allow you to buy another 5 or 6 properties in that year, instead of waiting for a year to get a 5% rate for 1 property.
@Brian Garrett I just refinanced some properties with B2r, now Finance of America and while my rate is in the 7-8% range, it allows me to pull out cash, without having to prove my income and keep buying, while the buying is good and keep going.
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Brian Garrett
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Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
9y
Originally posted by @Jay Hinrichs:

@Isiah Ferguson lima's rate is only too high if you can actually get a loan at a better rate if you cannot.. then at least you have an option to pull cash without waiting you have to analyze lost opportunity costs as it relates to a 5% loan and a 8% loan....
it could be you find a smoking deal and the difference in interest rates are simply the cost of doing business to secure your next great deal.
Exactly how I see it as well.
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Brian Garrett
OP
Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
9y
Originally posted by @Michaela G.:

@Isiah Ferguson
I have just refinanced with B2R, which are now Finance of America. They lend based on assets and their rates are in the 7-8% range.
If you look at the big picture: You can work the next year in a minimum wage job and then refinance your proporty or you can find good enough deals that still give you cash flow after you refinanced at a 7-8% rate and maybe have another 5 or 6 properties in that year that might give you the same cashflow of what the one property without loan would have.
So, it might be a higher rate, but your cashflow is the same and you now have 5 or 6 appreciating assets, instead of 1 .
This is exactly how I'm looking at it as well. Does Finance of America only do the refinancing or do they handle the front end purchase also?
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Brian Garrett
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Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
9y
Originally posted by :

@Brian Garrett I just refinanced some properties with B2r, now Finance of America and while my rate is in the 7-8% range, it allows me to pull out cash, without having to prove my income and keep buying, while the buying is good and keep going.
This sounds like a great plan and exactly what I'm looking for. I asked in my previous response already but does Finance of America only handle the refinancing or the front end purchase as well?
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Michaela G.
Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
9y
Originally posted by @Brian Garrett:

Originally posted by @Michaela G.:
@Isiah Ferguson
I have just refinanced with B2R, which are now Finance of America. They lend based on assets and their rates are in the 7-8% range.
If you look at the big picture: You can work the next year in a minimum wage job and then refinance your proporty or you can find good enough deals that still give you cash flow after you refinanced at a 7-8% rate and maybe have another 5 or 6 properties in that year that might give you the same cashflow of what the one property without loan would have.
So, it might be a higher rate, but your cashflow is the same and you now have 5 or 6 appreciating assets, instead of 1 .
This is exactly how I'm looking at it as well. Does Finance of America only do the refinancing or do they handle the front end purchase also?
I think they do, but I haven't used them for that, so I don't know. But you'd probably have to put down 25% and that's where you'll be limiting yourself on cash.
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Isiah Ferguson
Investor · Charlotte, NC · Member since 2017 · 321 posts · 157 votes
9y
@Brian Garrett Now that's forward thinking from both you guys. I didn't think that but good points. Ill analyze it from a numbers stand point as far as cash flow and ROI. If it make sense ill weight my option and mybe refi quicker than I expected. Thank you.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
cost of capital is a number.. depending on your market it could be an irrelevant number.
like were @Michaela G. invests were property price to rent ratios are way out of kilter compared to other areas.. she can afford far more in interest rates than most and still make a great income property. you need to see the bottom line.
if you can borrow at 8 or 9 % and still make 300 a door.. what do you do.. NOT do it because you want to borrow at 5 or 6 and make 375 a door.. so you just sit on the side lines and watch the world go buy?
I have personally funded 4 different operators that have gone from zero to 100 to 200 doors in the last 3 years all with our private money. and we are not bank rates by anymeans but they make 200 to 300 a door so its not really about cost of capital its about scale... had a call with one yesterday by end of may they will be at 180 doors and 140k gross revenue.. and I funded each and every one of them
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Brian Garrett
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Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
9y
Originally posted by @Michaela G.:

Originally posted by @Brian Garrett:
Originally posted by @Michaela G.:

@Isiah Ferguson
I have just refinanced with B2R, which are now Finance of America. They lend based on assets and their rates are in the 7-8% range.
If you look at the big picture: You can work the next year in a minimum wage job and then refinance your proporty or you can find good enough deals that still give you cash flow after you refinanced at a 7-8% rate and maybe have another 5 or 6 properties in that year that might give you the same cashflow of what the one property without loan would have.
So, it might be a higher rate, but your cashflow is the same and you now have 5 or 6 appreciating assets, instead of 1 .
This is exactly how I'm looking at it as well. Does Finance of America only do the refinancing or do they handle the front end purchase also?
I think they do, but I haven't used them for that, so I don't know. But you'd probably have to put down 25% and that's where you'll be limiting yourself on cash.
I don't mind 20-25% down payments. I have enough cash to accommodate for that and since I'll be cash out refinancing anyways and pulling that cash back out in 6-12 months it's not a big deal.
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Brian Garrett
OP
Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
9y
Originally posted by @Isiah Ferguson:
@Brian Garrett 8% giving worst case but i believe the rates were between 6%-8% depending on your personal credit. You may want to give them a call and make sure they serve your state as well.
@Jay Hinrichs @Michaela G. Now that's forward thinking from both you guys. I didn't think that but good points. Ill analyze it from a numbers stand point as far as cash flow and ROI. If it make sense ill weight my option and mybe refi quicker than I expected. Thank you.
When you say the rate is based off personal credit are you referring to your credit score?
I'm assuming so since they don't need proof of income?
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@Brian Garrett private and HML which are what these companies are do NO doc loans every day of the week. your not unique.. just call the few I mentioned ... you will get your answer in 5 minutes.
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Brian Garrett
OP
Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
9y
Originally posted by @Jay Hinrichs:
cost of capital is a number.. depending on your market it could be an irrelevant number.
like were @Michaela G. invests were property price to rent ratios are way out of kilter compared to other areas.. she can afford far more in interest rates than most and still make a great income property. you need to see the bottom line.
if you can borrow at 8 or 9 % and still make 300 a door.. what do you do.. NOT do it because you want to borrow at 5 or 6 and make 375 a door.. so you just sit on the side lines and watch the world go buy?
I have personally funded 4 different operators that have gone from zero to 100 to 200 doors in the last 3 years all with our private money. and we are not bank rates by anymeans but they make 200 to 300 a door so its not really about cost of capital its about scale... had a call with one yesterday by end of may they will be at 180 doors and 140k gross revenue.. and I funded each and every one of them
That's amazing Jay very inspirational. It's exactly the path that I'm looking to follow. I want to be able to scale up my cash flowing rentals utilizing the BRRRR strategy alongside the cash flips that I'll be doing for quicker cash turnaround and to increase both my net worth and working capital.
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Christie Gahan
Investor · Hillsboro, OR · Member since 2016 · 310 posts · 153 votes
9y
Maybe you should work with HMLs and flip ? This could give you a bigger pile of cash. Or wholesaling ?
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@Brian Garrett rental business is a business's you must look at bottom line numbers.
and each market will dictate how much you can pay for capital.
in a market like Michealas were she can buy a sub 20k house and rent it for 800 bucks.
you can pay HUGE interest rate and still make good money
If your paying 400k for a property that brings in 2500 a month then interest rate is a critical component. you need to do the math
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Brian Garrett
OP
Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
9y
Originally posted by @Jay Hinrichs:

@Brian Garrett private and HML which are what these companies are do NO doc loans every day of the week. your not unique.. just call the few I mentioned ... you will get your answer in 5 minutes.
To my understanding HML's are significantly higher interest and have up front points tied in as well. To me these seem like much better options on the surface than HML's.
Remember I do have my own capital so I don't technically "need" to borrow but I "want" to borrow so I can leverage and scale up quicker. It makes far more sense to me to take my cash and have a bunch of properties at 20-25% down rather than have it all tied up into one or two properties.
I'm just trying to figure out the best way to make that happen.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
these lenders I mentioned ARE HML s they will all have points up front.. banks have points up front.. and banks have a load of junk fees
at the end of the day any bank loan you will pay 4 to 6k out the door more than you borrow call it points call it junk fees
HML will be 2 to 4 points and usually some junk fees.
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1 Reply
Brian Garrett
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Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
9y
Originally posted by @Christie Gahan:

Maybe you should work with HMLs and flip ? This could give you a bigger pile of cash. Or wholesaling ?
I don't need HML's to flip. I have my own cash for that. I will definitely be doing flips as well.
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Brian Garrett
OP
Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
9y
Originally posted by @Jay Hinrichs:

@Brian Garrett rental business is a business's you must look at bottom line numbers.
and each market will dictate how much you can pay for capital.
in a market like Michealas were she can buy a sub 20k house and rent it for 800 bucks.
you can pay HUGE interest rate and still make good money
If your paying 400k for a property that brings in 2500 a month then interest rate is a critical component. you need to do the math
I understand completely. Great advice Jay!
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Brian Garrett
OP
Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
9y
Originally posted by @Jay Hinrichs:
these lenders I mentioned ARE HML s they will all have points up front.. banks have points up front.. and banks have a load of junk fees
at the end of the day any bank loan you will pay 4 to 6k out the door more than you borrow call it points call it junk fees
HML will be 2 to 4 points and usually some junk fees.
Ok now this is where I just got confused. I already know about HML's as an option I was under the impression that these suggestions were better and more lucrative options to avoid having to go get hard money or private money. I guess I need to process all of this information some more and then see if I can understand it better or more clearly. Thank you nonetheless.
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Andrew M.
Atlanta, GA · Member since 2017 · 54 posts · 30 votes
9y
@Jeff Wallace You mentioned the importance of W-2 income, and I agree. On a related note I wanted to mention something I heard recently as it relates to self-employed individuals hoping to use the BRRR strategy. Generally self-employed people have a much harder time qualifying for financing, however someone recently mentioned the idea of structuring your business as an S-Corp and paying yourself a salary, thus W-2 income, and that this would make it easier to qualify for traditional financing even though you're still technically self-employed. Perhaps you've heard of this being done as well?
1 Reply
Isiah Ferguson
Investor · Charlotte, NC · Member since 2017 · 321 posts · 157 votes
9y
@Brian Garrett They will give you a interest rate between 6%-8% based off your credit score. The high your credit score, the better rate you will get.
1 Reply
Brian Garrett
OP
Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
9y
Originally posted by @Andrew M.:

@Jeff Wallace You mentioned the importance of W-2 income, and I agree. On a related note I wanted to mention something I heard recently as it relates to self-employed individuals hoping to use the BRRR strategy. Generally self-employed people have a much harder time qualifying for financing, however someone recently mentioned the idea of structuring your business as an S-Corp and paying yourself a salary, thus W-2 income, and that this would make it easier to qualify for traditional financing even though you're still technically self-employed. Perhaps you've heard of this being done as well?
Interested in hearing responses to this. I own a few S-Corps but have never paid myself W-2 income. Regardless it won't help me now since I'm not going to wait 2 years even if I started paying myself W-2 income today but it's an interesting concept nonetheless.
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Brian Garrett
OP
Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
9y
Originally posted by @Isiah Ferguson:

@Brian Garrett They will give you a interest rate between 6%-8% based off your credit score. The high your credit score, the better rate you will get.
Understood. That's good to know since I have a solid credit score. Thank you.
1 Reply
Ericka G.
Investor · Atlanta, GA · Member since 2015 · 366 posts · 283 votes
9y
6-8% really isn't bad, "regular" banks are offering 5-6% on 30 yr fixed loans these days for non owner occupied multi-families for borrowers with a W-2...and with the no doc lenders it sounds like you don't have to cut thru 8 miles of red tape and offer your first born to get a loan. I'm ALMOST willing to pay the extra point or two just to avoid the annoying traditional bankers I've had to deal with lately. Let us know how it works out and what rate you end up with
2 Reply
Account Closed
Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes
9y
Originally posted by @Brian Garrett:

How would I be able to buy a property initially and cash out refinance utilizing the BRRRR strategy if I cannot prove income right now? That's the biggest hurdle I'm experiencing in planning for my future cash flow properties at the moment. I have a decent amount of cash saved up but even if I used that to buy a property outright I'm still going to run into the problem of getting my cash back out to reinvest into the next property, correct? Is there anyway around this? Creating an LLC and getting a commercial loan instead of trying to get a conventional loan in my personal name? HELOC? What should my strategy be? I just don't want to end up stuck with the one property without being able to roll that cash over into the next one to keep growing my portfolio.
Do what I do and use other people's money.
You can buy "Subject To", rehab, Sell, rinse, repeat, or buy "Subject To", Rent, rinse, repeat.
Or, find a doctor, dentist or businessman with lots of cash to invest and pay them an interest rate you are both happy with. No bank, no credit needed. It has worked in all markets for me for the last 20 years. Before that, I was a loan officer, so yes, I can qualify for bank loans, but why do that when my way is so much more profitable? Ken
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