BRRRR without proof of income?
Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
BRRRR without proof of income?
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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 · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes9y
One thing about Lima - I tried to refinance with them. Had good credit score, but was turned down because I only had 2 open tradelines (credit cards etc). My commercial line of credit is not reported to the credit bureaus, so that didn't count and since I bought my houses with cash I had not accumulated a lot of credit cards and was using my debit and one credit card. Immediate rejection.
- Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes9y
Originally posted by @Brian Garrett:
Originally posted by @Albert Bui:
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.
Very good information here Albert. Would you mind shooting me a PM to discuss a bit further? I fit the situation you described with ZERO debt. My credit cards carry a $0.00 balance and I have no other debt of any sort so this strategy sounds like it could be great for me. Thank you!
Sure - send now -
- Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes9y
Originally posted by @Albert Bui:
Originally posted by @Brian Garrett:
Originally posted by @Albert Bui:
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.
Very good information here Albert. Would you mind shooting me a PM to discuss a bit further? I fit the situation you described with ZERO debt. My credit cards carry a $0.00 balance and I have no other debt of any sort so this strategy sounds like it could be great for me. Thank you!
Sure - send now -
Great, thanks!
- Investor · Charlotte, NC · Member since 2017 · 321 posts · 157 votes9y
When doing a BRRRR. How do you make sure your refinancing apprasial is high enough to pay back your lender ? What are to specific ? is it the buy ? @Jay Hinrichs @Michaela G.
- Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes9y
Originally posted by @Isiah Ferguson:
When doing a BRRRR. How do you make sure your refinancing apprasial is high enough to pay back your lender ? What are to specific ? is it the buy ? @Jay Hinrichs @Michaela G.
You make your money when you buy. You have to run your numbers before you buy and buy low enough to make it worthwhile. But you don't have much control over the appraisal. Yes, some people provide a whole package for the appraiser. A few months ago an appraiser told me how he just takes that package and throws it into his backseat and doesn't look at it, because he isn't allowed to.
- Investor · Charlotte, NC · Member since 2017 · 321 posts · 157 votes9y
Originally posted by @Michaela G.:
Originally posted by @Isiah Ferguson:
When doing a BRRRR. How do you make sure your refinancing apprasial is high enough to pay back your lender ? What are to specific ? is it the buy ? @Jay Hinrichs @Michaela G.
You make your money when you buy. You have to run your numbers before you buy and buy low enough to make it worthwhile. But you don't have much control over the appraisal. Yes, some people provide a whole package for the appraiser. A few months ago an appraiser told me how he just takes that package and throws it into his backseat and doesn't look at it, because he isn't allowed to.
70% of ARV - repairs = maximum offer. This will make sure the numbers are correct to buy, to make money when you purchase ? This way the apprasial will always be favorable correct ?
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Isiah Ferguson in todays reality or market reality that metic is VERY OLD NEWS and pert near impossible to get.. you can get that in the HOOD but not in B or A class. ( again with any consistency )
- Investor · Charlotte, NC · Member since 2017 · 321 posts · 157 votes9y
Originally posted by @Jay Hinrichs:
@Isiah Ferguson in todays reality or market reality that metic is VERY OLD NEWS and pert near impossible to get.. you can get that in the HOOD but not in B or A class. ( again with any consistency )
How do I make sure the appraisal is favorable, so when I refinance at lease I get money cash back plus more ?
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Isiah Ferguson you don't no assurances in this game...
- Investor · Philadelphia, PA · Member since 2010 · 739 posts · 372 votes9y
Originally posted by @Isiah Ferguson:
When doing a BRRRR. How do you make sure your refinancing apprasial is high enough to pay back your lender ? What are to specific ? is it the buy ? @Jay Hinrichs @Michaela G.
You get the appraisal done before the loan, so if your numbers are off you basically donated $500 to an appraisal company.
Or if the appraiser doesn't know what he/she is doing and prices are way off
- Investor · Philadelphia, PA · Member since 2010 · 739 posts · 372 votes9y
@Jacob Murphy so with Lima essentially you're paying points 3x
- once on the hard money
- once on the bridge
- once on the refi
Has to kill the numbers in your deal
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Chris Purcell hardmoney loan and Bridge are one in the same.
if you have no money you need either and equity partner or you need to pay a lender going rate.. and your right if the deal does not have enough juice its a pass.. the HML won't do the deal anyway.
the idea that real estate can be done in any meaningful way without the buyer having a good job good credit good savings and know how.. is just fantasy 99% of the time.. its all these folks wishing and dreaming of getting rich with NON of their own money.
if you have no capital to start best bet is to find a capital partner..
- Investor · Philadelphia, PA · Member since 2010 · 739 posts · 372 votes9y
@Jay Hinrichs I apologize i thought I read someone mentioning a bridge loan instead of a refi, maybe I read it wrong
Hard money and refi are already too many points as-is IMO
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Chris Purcell certainly depends on markets. and spreads in the deals.
when we are used to borrowing form our local banks at say 1 and 5 or 6 and or getting conventional loans at sub 5% for 30 years.. yes.. however I know if your practicing CPA and look at HUDS even loans from cheap money sources juice up the junk fee's you pretty much are going to pay 4 to 6k out of pocket for ANY loan... plus points .
the only way you get out of that is having facility with a local community bank doing shorter term.. were they will charge a point and just charge 3rd party fee's IE closing cost title etc. that's how we roll.
Also when I say regional.. out your way HML can be 4 and 14% pretty routinely.
on the west coast I just did a HML at 1 and 8 a little more than I pay from my bank.. junk fee's were 1,500... so its all about the spread as long as I make my 30 to 50% APR or more on my down payment I don't really care to much on the cost of capital.. but being on the lending side I won't pay what I charge LOL
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Chris Purcell also big caveat I am not a buy and holder.. we do value add and get out as quick as possible.. I understand buy and hold is far more concerned with cost of loan over time.
- Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes9y
I skimmed through the prior posts. The question I have is: have you talked to and been turned down by every commercial bank within 50 miles? Until then, you don't know that a bank won't lend to you.
For everyone who may be laughing, I say you weren't investing prior to and during the great recession. Today vs. back in the GR... day vs. night. I literally was turned down by 11 commercial banks, with a solid portfolio (I wasn't just starting out, I had a track record.) Today, getting money is a LOT easier.
I don't know how much money you are talking, but if your target house is $X and you have 3-5 or more times that... then you need to 'pitch' what you are doing to a commercial lender. Don't go the Fannie Mae route, IMO, because they will want to see W-2 or Self employment income. A commercial lender will have you park your money at their bank and should (if you find the right one) finance your endeavors. You may have a restriced cash account until you get moving, but find and build a commercial bank is my recommendation. It will take work. But they lend. That's what they do.
Disclaimer: I don't have a W-2. Not for 16 years. I've borrowed millions from commercial banks.
- Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes9y
Originally posted by @Jay Hinrichs:
@Chris Purcell hardmoney loan and Bridge are one in the same.
if you have no money you need either and equity partner or you need to pay a lender going rate.. and your right if the deal does not have enough juice its a pass.. the HML won't do the deal anyway.
the idea that real estate can be done in any meaningful way without the buyer having a good job good credit good savings and know how.. is just fantasy 99% of the time.. its all these folks wishing and dreaming of getting rich with NON of their own money.
if you have no capital to start best bet is to find a capital partner..
Jay how much do you think is an adequate amount of capital to start?
- Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes9y
Originally posted by @Chris Martin:
I skimmed through the prior posts. The question I have is: have you talked to and been turned down by every commercial bank within 50 miles? Until then, you don't know that a bank won't lend to you.
For everyone who may be laughing, I say you weren't investing prior to and during the great recession. Today vs. back in the GR... day vs. night. I literally was turned down by 11 commercial banks, with a solid portfolio (I wasn't just starting out, I had a track record.) Today, getting money is a LOT easier.
I don't know how much money you are talking, but if your target house is $X and you have 3-5 or more times that... then you need to 'pitch' what you are doing to a commercial lender. Don't go the Fannie Mae route, IMO, because they will want to see W-2 or Self employment income. A commercial lender will have you park your money at their bank and should (if you find the right one) finance your endeavors. You may have a restriced cash account until you get moving, but find and build a commercial bank is my recommendation. It will take work. But they lend. That's what they do.
Disclaimer: I don't have a W-2. Not for 16 years. I've borrowed millions from commercial banks.
No I have not talked to any commercial banks yet. I'm just in the researching, learning and educating stage at the moment. That will definitely be the first thing I do once I'm ready to start looking for my first property. I just like to have a back-up plan already in place in case I'm unable to obtain conventional lending. Good information here thank you for sharing Chris.
- Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes9y
@Chris Martin , you have to pick and choose which bank you want to apply with, because every hard inquiry can lower your credit score, where you might end up at a bank that would have given you credit and won't because your score is now too low.
- Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes9y
Originally posted by @Michaela G.:
@Chris Martin , you have to pick and choose which bank you want to apply with, because every hard inquiry can lower your credit score, where you might end up at a bank that would have given you credit and won't because your score is now too low.
This is really good to know. With a car once you run the credit the first time you can then shop around and there's a window of "x" amount of days where it doesn't affect your credit score further. I just assumed shopping around for a mortgage with banks and lenders worked the same way.
- Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes9y
@Brian Garret , it ultimately will, if the inquiries are all grouped within a 30 day window. But that grouping will only happen afterwards, meaning that during those 30 days, you may have 2 or 3 inquiries and it won't matter, but then you'll have number 4 or 5 and your score lowers. And then you'll have 6 and 7 maybe and only lose another point and then maybe at 10 you'll lose another 10 or 20 points. But each inquiring bank would see the score at that time and not the score 25 days later, when all the previous 30 day inquiries are grouped as one.
I hope I explained that ok. It's a little complex and there's no definite information as to how much your score is effected with each pull. There are a number of criteria that effect the total.
For example, bringing my credit utilization from 49% to 25% brought my score up +40 points last month.
- Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes9y
Originally posted by @Ericka G.:
Chris Martin This is prob a dumb question, but commercial lenders only lend to LLCs, not individuals right?
I have a commercial line of credit on some of my properties and they didn't care if it was in my name or LLC, so, it's against my name.
- Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes9y
Originally posted by @Michaela G.:
@Chris Martin , you have to pick and choose which bank you want to apply with, because every hard inquiry can lower your credit score, where you might end up at a bank that would have given you credit and won't because your score is now too low.
Not the way I am talking.
You walk in to the bank and talk to a commercial lender. You walk in an say 'Hey, I am looking for help in implementing my plan. Here's what I want to do with my $1.3M (or whatever) that I have to invest in the local community. I'm hoping to bring my money here to start investing. Do you think you can help?'
Then you outline what you can and can't do. If they aren't interested, you should be able to tell in 20 or less minutes. During the GR, it sometimes took 30 seconds. LOL!
- Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes9y
Originally posted by @Ericka G.:
Chris Martin This is prob a dumb question, but commercial lenders only lend to LLCs, not individuals right?
They don't really care. While LLCs in my world are important because I have multiple members, in general, and can't do as an individual... the banks will usually look for personal guarantees anyway. The LLCs are fantastic if you have members (partners) who like to have some of the tax benefits (e.g. P/L/C ratios slanted towards taxable losses (e.g. 20%/30%/20%) and your operating agreement can reflect that.
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