BRRRR without proof of income?
Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
BRRRR without proof of income?
Most Popular Reply
Rental Property Investor · The Woodlands, TX · Member since 2014 · 345 posts · 288 votes
9yThis 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
144 Replies
- Investor · Bayside, NY · Member since 2017 · 1k+ posts · 1k+ votes9y
I have a number of scenarios, doing deals with family members, and doing deals with non family members. The essence is pairing up those with income to show but cash poor, and those cash rich but no income. I'll explain.
I was fortunate my mother in law was fascinated with real estate. She and her husband were super savers, and with the death of her husband collecting his life insurance, 30 years ago, had over half a million cash, a good sum back then. She had a small pension, but basically in the same boat as those with lots of cash, but not much income to show.
At the time, my wife was a finance company VP, me a programmer, a field that pays well, and my brother in law, a doctor. What she proposed that we all partner up, she with her cash, and us with our good incomes, excellent W2's, and together we make offers on properties. She proposed the same deal with my brother in law. We, the kids, each contributed cash as well. So, with her, we picked up several properties in NYC in the early 80's. Similarly, she did the same deal with my brother in law in San Francisco. Both areas experienced dynamic appreciation since, and working together, we all manage to acquire properties before the market bottomed out in the mid 1980's, then rode it to the next peak.
One other benefit working together as a unit is my wife has her name on some of mom's bank account. So in some cases, with deals that we do ourselves, at auctions for instance, they ask you, do you have the cash to complete the transaction, we show them the joint account with mom, and we're good to go. Also, some want to see if we had the cash for a number of years, aged, which mom's account do show, going back 10 years, and not some recent deposit.
Then, I found a creative realtor looking for a partner to do deals. So if they seller wants to know if the deal can be completed, I'm there to say I'm the income partner with W2's, tax returns to show. If they want to see where the cash is coming from, I got mom's statements to show. The partner and I just split the profits from the deal.
Doing deals this way does sometimes present hilarious consequences. In the mid 90's I was refinancing a few of my rentals, 2 of which I partnered with my MIL. The bank wanted paperwork for my MIL, got it, and found she partnered with my brother in law in San Francisco doing deals. So they want his tax returns. Turns out he partnered up with some other doctors doing deals as well. While I was discussing how long it's taking with our loan officer, even she thought it was getting ridiculous, because by the time they're done, if they ever, they'll wind up checking out 50 different people, maybe 40 doctors.
Fortunately, I have a Wealth account at my bank, and they wondered why we didn't go to them first. They already have info on us, so they said just get us updated tax returns, and W2's, you're go to go with us. We'll leave your MIL, BIL, his partner doctors out of it. We'll just consider you, and you alone.
So you'll have to find a way to market yourself, you're the cash guy willing and able to do deals.
- Mount Pleasant, UT · Member since 2017 · 1 post · 1 vote9yIf you have done any kind of sales, you know that it is much more profitable to FIND those that are already willing to buy your product, rather than convince someone who is reluctant that your product is worth purchasing. Now, as mentioned above, finding someone with loads of money and working a deal with them would be great. But it also can be really difficult. How many people do you know that want to invest and don't know how? Or aren't sure where to put their money? What if you were willing to pay a little higher interest, say 8% and you built your own lending group. You offer anyone and everyone a chance to invest, as much as they are willing. Their contribution ratio to project cost, would also be their percentage of return in interest. The more they invest. The more they could make. If you do it right, everyone comes out on top, no one has to fork out loads of money, and you build a portfolio of not only homes, but also lenders. It would take a bit of work. But you seem motivated enough to make things happen.
- Rental Property Investor · Doylestown, PA · Member since 2008 · 1k+ posts · 1k+ votes9y
I do no income purchase and refi loans all the time. The lenders I work with only care about credit score and property appraisal. You pay a higher rate but way less than private and hard money. 30 year terms too.
- Menomonie, WI · Member since 2015 · 25 posts · 5 votes9y
I have had good luck by purchasing properties as a part of an LLC with multiple owners. We are able to get portfolio loans at 6% fixed interest, amortized over 25 years, with 20% down. Whenever we apply for a mortgage they look at all four owners' income, tax records, etc. It's actually been very easy and closing costs have been low.
If you can partner with someone who does have the W2 income and then incorporate, that could solve your problems. Also, you can structure the LLC ownership however you want, in terms of percentage of ownership, that is. Good luck!
- Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes9y
Originally posted by @Ericka G.:
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
Hey Ericka thanks for your input. I agree with you that 6-8% is not too bad especially for someone that doesn't have the conventional option. Just depends what the rest of the deal looks like.
- Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes9y
Originally posted by @Account Closed:
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
Would you mind explaining this part of your post a bit more?
You can buy "Subject To", rehab, Sell, rinse, repeat, or buy "Subject To", Rent, rinse, repeat.
I'd love to understand the strategy but I'm not following it as is. Thank you!
- Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes9y
Originally posted by @Frank Chin:
I have a number of scenarios, doing deals with family members, and doing deals with non family members. The essence is pairing up those with income to show but cash poor, and those cash rich but no income. I'll explain.
I was fortunate my mother in law was fascinated with real estate. She and her husband were super savers, and with the death of her husband collecting his life insurance, 30 years ago, had over half a million cash, a good sum back then. She had a small pension, but basically in the same boat as those with lots of cash, but not much income to show.
At the time, my wife was a finance company VP, me a programmer, a field that pays well, and my brother in law, a doctor. What she proposed that we all partner up, she with her cash, and us with our good incomes, excellent W2's, and together we make offers on properties. She proposed the same deal with my brother in law. We, the kids, each contributed cash as well. So, with her, we picked up several properties in NYC in the early 80's. Similarly, she did the same deal with my brother in law in San Francisco. Both areas experienced dynamic appreciation since, and working together, we all manage to acquire properties before the market bottomed out in the mid 1980's, then rode it to the next peak.
One other benefit working together as a unit is my wife has her name on some of mom's bank account. So in some cases, with deals that we do ourselves, at auctions for instance, they ask you, do you have the cash to complete the transaction, we show them the joint account with mom, and we're good to go. Also, some want to see if we had the cash for a number of years, aged, which mom's account do show, going back 10 years, and not some recent deposit.
Then, I found a creative realtor looking for a partner to do deals. So if they seller wants to know if the deal can be completed, I'm there to say I'm the income partner with W2's, tax returns to show. If they want to see where the cash is coming from, I got mom's statements to show. The partner and I just split the profits from the deal.
Doing deals this way does sometimes present hilarious consequences. In the mid 90's I was refinancing a few of my rentals, 2 of which I partnered with my MIL. The bank wanted paperwork for my MIL, got it, and found she partnered with my brother in law in San Francisco doing deals. So they want his tax returns. Turns out he partnered up with some other doctors doing deals as well. While I was discussing how long it's taking with our loan officer, even she thought it was getting ridiculous, because by the time they're done, if they ever, they'll wind up checking out 50 different people, maybe 40 doctors.
Fortunately, I have a Wealth account at my bank, and they wondered why we didn't go to them first. They already have info on us, so they said just get us updated tax returns, and W2's, you're go to go with us. We'll leave your MIL, BIL, his partner doctors out of it. We'll just consider you, and you alone.
So you'll have to find a way to market yourself, you're the cash guy willing and able to do deals.
Great insight, advice and stories. I would certainly consider family and friends as a last resort. Glad everything worked out so well for you guys! Thank you Frank.
- Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes9y
Originally posted by @Account Closed:
If you have done any kind of sales, you know that it is much more profitable to FIND those that are already willing to buy your product, rather than convince someone who is reluctant that your product is worth purchasing.
Now, as mentioned above, finding someone with loads of money and working a deal with them would be great. But it also can be really difficult. How many people do you know that want to invest and don't know how? Or aren't sure where to put their money? What if you were willing to pay a little higher interest, say 8% and you built your own lending group. You offer anyone and everyone a chance to invest, as much as they are willing. Their contribution ratio to project cost, would also be their percentage of return in interest. The more they invest. The more they could make. If you do it right, everyone comes out on top, no one has to fork out loads of money, and you build a portfolio of not only homes, but also lenders.
It would take a bit of work. But you seem motivated enough to make things happen.
Very logical and you make some valid points. I have several friends whom I told I was venturing into REI that already made it clear that they would like to invest with me on deals once I get the ball rolling. So this is definitely something to be considered but I think it would need to be a little bit further down the road once I've got some deals under my belt and am more comfortable.
- Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes9y
Originally posted by @Salvatore Lentini:
I do no income purchase and refi loans all the time. The lenders I work with only care about credit score and property appraisal. You pay a higher rate but way less than private and hard money. 30 year terms too.
Very good to know. Shoot me a PM and let's connect. Would love to pick your brain!
- Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes9y
Originally posted by @Tim Nelson:
I have had good luck by purchasing properties as a part of an LLC with multiple owners. We are able to get portfolio loans at 6% fixed interest, amortized over 25 years, with 20% down. Whenever we apply for a mortgage they look at all four owners' income, tax records, etc. It's actually been very easy and closing costs have been low.
If you can partner with someone who does have the W2 income and then incorporate, that could solve your problems. Also, you can structure the LLC ownership however you want, in terms of percentage of ownership, that is. Good luck!
If you structure an LLC with a partner and you are 50/50 in the entity the lenders won't want to see both owners proof of incomes? For example if in your case 2 of the 4 owners didn't have any proof of income would you still be able to get approved operate in the same fashion?
- Hurricane, UT · Member since 2017 · 4 posts · 2 votes9y
I am in a similar boat as you Brian. Why are you focused on the BRRRR strategy? In my mind and what we are focusing on is a flipping. As I see it, my capital will only be locked up for a short time as I rehab the property and then resell. If I can successfully do this with a conservative 20% return target I should be able to build enough cash to expand into other strategies. Thoughts?
- Real Estate Agent · Souderton, PA · Member since 2016 · 591 posts · 414 votes9yBrian Garrett is it that you cannot "prove" you have had any income, or have you just simply made no income at all over the past 2 years? Depending on your answer to this question, my advice will be slightly different although in the meantime I'll say this. Look at your scenario from the side of a lender, would you lend you money? As the lender think about what happens when a trouble tenant rents your property and stops paying rent, lives there for 6-12 months as you drag them through the legal process, only to get your vacant property back that now needs $40k in repairs? How is the mortgage paid in the meantime, how will the repairs be made? Trust me, I realize I'm painting a rare horror story that doesn't happen often, but just read through some threads on this site and it might happen more often than you think. My point being I understand your thought process and it seems like lenders should be more than willing to lend with all that rental income but until you have years of tax returns showing steady and consistent rental income will banks begin to "count" that as income, and even then iv heard it's not a walk in the park. In the short term you can try calling 100 banks, you honestly might find one willing, or try some of the other options mentioned like crowd funding or even better find a private lender like friends family or anyone willing to lend you the money, BUT long term you need to sit down and look at what you want out of REI and life. If you want a bunch of properties, that might mean sucking it up for a year or two and getting a "real" job. I know it sounds terrifying, a J. O. B. After not having one for over 2 years, but until you can produce a steady consistent income through real estate (wholesaling or flipping) you'll need to produce income another way to qualify for loans and implement the BRRRR strategy.
- Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes9y
Originally posted by @Brian Stewart:
I am in a similar boat as you Brian. Why are you focused on the BRRRR strategy? In my mind and what we are focusing on is a flipping. As I see it, my capital will only be locked up for a short time as I rehab the property and then resell. If I can successfully do this with a conservative 20% return target I should be able to build enough cash to expand into other strategies. Thoughts?
Essentially that's what I'm doing as well. I plan to do both flips and BRRRR.
- Investor · Omaha, NE · Member since 2015 · 366 posts · 184 votes9yI would try and find someone to partner with. That would look good to lenders. Also, you can try and get a loan for 50-65% ltv. That way the lenders would have a large portion of security and feel more comfortable with you.
- Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes9y
Originally posted by @William C.:
Brian Garrett is it that you cannot "prove" you have had any income, or have you just simply made no income at all over the past 2 years? Depending on your answer to this question, my advice will be slightly different although in the meantime I'll say this. Look at your scenario from the side of a lender, would you lend you money? As the lender think about what happens when a trouble tenant rents your property and stops paying rent, lives there for 6-12 months as you drag them through the legal process, only to get your vacant property back that now needs $40k in repairs? How is the mortgage paid in the meantime, how will the repairs be made? Trust me, I realize I'm painting a rare horror story that doesn't happen often, but just read through some threads on this site and it might happen more often than you think. My point being I understand your thought process and it seems like lenders should be more than willing to lend with all that rental income but until you have years of tax returns showing steady and consistent rental income will banks begin to "count" that as income, and even then iv heard it's not a walk in the park. In the short term you can try calling 100 banks, you honestly might find one willing, or try some of the other options mentioned like crowd funding or even better find a private lender like friends family or anyone willing to lend you the money, BUT long term you need to sit down and look at what you want out of REI and life. If you want a bunch of properties, that might mean sucking it up for a year or two and getting a "real" job. I know it sounds terrifying, a J. O. B. After not having one for over 2 years, but until you can produce a steady consistent income through real estate (wholesaling or flipping) you'll need to produce income another way to qualify for loans and implement the BRRRR strategy.
Thank you William I understand all of your points. I'm just relieved to have found out through this thread and other communications that there are ways around my problem. I just didn't want to have to go the all cash route because then I would be limited on my ability to scale. Having lending options allows me the ability to leverage my cash and scale at a significantly faster pace since I do have a decent amount of working capital to start. It makes a lot more sense to me to have my cash spread throughout a bunch of 20-25% down payments rather than have it all tied up between just one or two properties. I will also be doing cash flip deals as well. Hope this makes sense!
- Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes9y
Originally posted by @Kyle Godbout:
I would try and find someone to partner with.
That would look good to lenders. Also, you can try and get a loan for 50-65% ltv. That way the lenders would have a large portion of security and feel more comfortable with you.Great idea I didn't think about the possibility of a loan at a lesser LTV. That is an option I will need to explore as well. Anyone know if this can be done? Thanks Kyle!
- Real Estate Agent · Souderton, PA · Member since 2016 · 591 posts · 414 votes9yJay Hinrichs great point. Are you looking for more operators? We are always looking for more capital....
- Hurricane, UT · Member since 2017 · 4 posts · 2 votes9y
Originally posted by @Brian Garrett:
Originally posted by @Salvatore Lentini:
I do no income purchase and refi loans all the time. The lenders I work with only care about credit score and property appraisal. You pay a higher rate but way less than private and hard money. 30 year terms too.
Very good to know. Shoot me a PM and let's connect. Would love to pick your brain!
I am interested in hearing more about your "no income purchase and refi loans". BTW, Salvatore Lentini...very Sicilian! We lived there for a few years; have you been there?
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Brian Stewart check with Peak lending in KC they have this product a lot of people try to resell their product .. so you can go straight to the source if you wish
- Hurricane, UT · Member since 2017 · 4 posts · 2 votes9y
Originally posted by @Jay Hinrichs:
@Brian Stewart check with Peak lending in KC they have this product a lot of people try to resell their product .. so you can go straight to the source if you wish
Thanks for the lead Jay!
- Brian Garrett couple other things to try that I have not seen mentioned yet (or perhaps I missed them): - Get a partner with a job and good credit who can do the refinance. You provide the initial capital for the purchase and finance and they refinance - Depending on the cash you have at hand, some brokerages like Merrill Lynch allow you to borrow against it at a nominal rate. This can at least help you get started but not "tie up" your cash. Not exactly completely liquid either.
- Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes9y
Originally posted by @Brian Garrett:
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
Would you mind explaining this part of your post a bit more?
You can buy "Subject To", rehab, Sell, rinse, repeat, or buy "Subject To", Rent, rinse, repeat.
I'd love to understand the strategy but I'm not following it as is. Thank you!
Hi @Brian Garrett: In response to your question:
1) Sure. Last month I bought a 4 bed 2 bath for $100 down "Subject To" the existing loan. It was NOT a foreclosure, all payments were current. Basically, I took over the loan and payments. I sold it on a Wrap for $25,000 down and a higher monthly payment giving me a positive cash flow of $750 a month in addition to the $25,000 I received. (Not including the equity I'll get at payoff). I spent $500 and 30 days getting the placed cleaned up while I looked for a buyer. I made one month's mortgage payment. In this case I actually SOLD the property so I don't have a "Tenant", I have a "Tenant Buyer".
I did another, better one, simultaneously with one of my partners that I am training. We will net about $40,000 after expenses on an $8,000 investment. (Not including the equity I'll get at payoff)
2) A couple of months ago I got a Seller to Lease Option to me a totally paid off property for $100 down and payments of $850 a month. I did a Sandwich Lease Option to my Tenant who has the Option to buy, where I got $10,000 down and $1250 a month for positive cash flow of $450 a month. (Not including the equity I'll get at payoff). This is more of a rental (Rent to Own / Lease Option).
Either of these two can be repeated over and over. I've been doing Subject To's for twenty years. I've also done them as flips, but these are faster, and more profitable, less risky and less hassle.
Since BP doesn't allow me to put my email address here you'd need to PM me for more info, which I'd be happy to give. Most people don't want to wade through details as they read the thread.
Ken
- Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes9y
Originally posted by @Brian Garrett:
@Chris Mason What happens in the scenario where I have a tenant in place and there is rental income? Would I have to wait 2 years to show that rental income before I would qualify for any sort of conventional loan or be able to cash out refinance? There's got to be a way for those of us who can't show proof of income (but have solid credit scores, have cash and/or assets, have no debt) to still be able to implement the BRRRR strategy. Or at least I'm hoping so?
P.S. I'm not specifically asking for a 30YF mortgage I'm just looking to see what options I would have in general, if any, so I can determine if BRRRR will even work for me or not.
HI Brian,
The below is with regards to conventional financing for BRRR not portfolio money, private money, or hard money.
I've done files for RE investors with purely real estate rental income so in your hypothetical if you had zero other debt (car, credit cards, student loans, no nothing or all $0.00 balance) then you could qualify for a cash out or regular rate/term refinance "if," the net rental income on your hypothetical rental (75% of gross rents since this is a recent purchase of a BRRR strategy) exceeds the PITIA ( principal/interest/taxes/insurance/assessments) of your property.
So in essence, if your BRRR property "cash flows," with respect to how fannie mae or freddie mac calculates your income and you have no other obligations or housing expenses (AKA you live at home with mom and dad) then yes its possible to qualify with no regular W2 income or self employment income.
Rental income is the fastest income to use with out seasoning or history of it being received. All you need is a rental lease agreement signed and dated + copy of a security deposit and you can use 75% of it - PITIA right away.
All other income types require extended periods of time to use in a conventional financing scenario such as:
- note or interest income or dividends from stocks - receipt for min of 2 years as shown on tax returns + 3 years of continuance on the note and stocks are assumed to provide income into the future
- self employment income - min 1 years of history and 2 years in the same industry with no significant gaps of employment
- W2 income or salary - min 2 years working in the industry or higher education(college) in a related field with no significant gaps of employment and min 1 paystub to use income to qualify
- Bonus income at W2 job - min 2 years of receipt (off chance to use 1-2 years of receipt)
- over time income at W2 job - mins 2 years of receipt (off chance to use 1-2 years of receipt)
- contractual income like sandwich leases, land contracts, is similar to the note or interest income above
- royalties use for qualification is like contractual income - min receipt on tax returns for 2 + years to average for use to qualify
- alimony is min 6 months of receipt to use the income as a reliable income source for qualification purposes
- child support income 6 months of receipt plus min 3 years of continuance or 36 months left till the child is 18 years of age or you cannot use it
- automobile allowance from employer W2 - needs to have been received for 2 + years to use
- many other types of income.
- Rental Property Investor · Grand Rapids, MI · Member since 2016 · 262 posts · 205 votes9yWow, great thread! I am in a similar situation! Thank you everyone for responding!!
- Rental Property Investor · Bakersfield, CA · Member since 2016 · 58 posts · 27 votes9yBrian Garrett maybe find someone with the W-2 income to consign for you?
Join the conversationCreate a free account to reply, vote on answers and follow this thread.