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.
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
OK So I tried to read through and see what others said. If I repeat something, I am sorry.
First, I am in the same boat, sort of. So, I got my real estate license and became self employed and after 2 years the work I was doing with REI was also counting as self employment income. Not a ton though and certainly not enough to get me the loans I want.
I did a lot of research and because of my good credit I was able to look at loan opportunities through government programs for making my properties energy efficient or if they were in low income areas they met low income development program needs and qualified. I live in CT and one of the links for example is: http://www.chif.org/page/energy-efficiency-loans . This helped me keep some of my cash out on LOW interest (2.99% to 4.99%).
These two things helped me retain the LTV's and some income to help (not cure) the issues I had with banks until my properties could establish long term income of their own.
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!
I really do think that track record has a huge influence. It's very different for someone with a solid history of renovating and renting from someone that tallks a big game, but has only one or no deals under their belt.
We all know that most people that want to become investors and read and visit seminars will never buy their first property. Maybe 1 of 100 will walk away from a seminar and actually move into regular investing. The rest will play with the idea for a while, but end up moving their interest to something else.
So, I don't think it's realistic to expect a newbie to be able to walk into a bank and walk away with easy cash.
@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.
I didn't see this message until now because the tag didn't work but I understand your points and they make sense. I guess the only thing someone could do is explain to the lenders that you have been shopping around and that's what may be affecting the score.
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.
@Albert Bui - That sounds kind of like a dream. I'd like to PM you for further detail. Is that alright?
@Brian G. Thanks for starting this conversation, and to everyone else for the advice. What a great wealth of information that has sprung up here for those without w2 income, and with a little cash.
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.
@Albert Bui - That sounds kind of like a dream. I'd like to PM you for further detail. Is that alright?
@Brian G. Thanks for starting this conversation, and to everyone else for the advice. What a great wealth of information that has sprung up here for those without w2 income, and with a little cash.
Sure, it may seem like that but I've done multiple VA and FHA house hack loans and have underwriting findings proving I've used the rental income to improve the qualifications (debt to income).
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.
@Albert Bui - That sounds kind of like a dream. I'd like to PM you for further detail. Is that alright?
@Brian G. Thanks for starting this conversation, and to everyone else for the advice. What a great wealth of information that has sprung up here for those without w2 income, and with a little cash.
No problem glad it was able to provide value and insight to others as well.
This has been an enlightening conversation to read. I am a very new investor (in fact, I can't even use the term investor since I haven't gotten a deal yet!) I have made several offers on the MLS through a couple realtors but the sellers haven't taken my Max Allowable Offer. I have a decent W-2 job in a director-level role, but my wife and I have decided that REI is the way to go for the long-term future of our family, beginning with flipping a house for an initial surge of cash to make a downpayment for a BRRRR property. I am planning on parting ways with my current job on 12/1, hoping to have my first deal in progress at the time. However, my plan of doing a BRRRR in the early part of next year may not be possible since I won't have a current W-2 job to get the 'refinance' and cash out on the rental property.
I'm fine with doing flips for two years to generate the taxable income and give access to longer term financing options and have a private lender that I can work with for the short-term loans on the fix and flip properties initially. I'm glad I came across this article so that I could adjust my intial REI strategy! Thanks!
Great thread to read, learning lots and have saved some links. If I had known about some of these financing options years ago...oh well, I still have my one rental property and maybe I'll be able to turn the one into two soon.
Hi, Just read your post on BRRRR without W2 income. I wanted to follow up to see if you have solved your problem? if so, what did you do? What is the outcome now? I may be facing a similar problem down the road. Thanks!
Good stuff! Thanks for starting the topic, there are definitely a lot of gems in this thread. I'm in the process of selling my rental property to free up some capital to switch strategies and basically create a scalable rental business while doing some flips on the side as well. Considering the fact that I'm in the same boat with no W-2's for this past year all this info has been helpful. I'd too be interested in hearing any updates about your situation and which direction you decided to go @Brian Garrett Thanks again.
@Brian Garrett Update on how this turned out for you?
Also, you could do like me and be self-employed via an S-corp and pay yourself partially via w-2, then you would have a w-2 to waive around. Although the tax hit is likely not worth it if you already can justify to the feds all your income is passive.
Hey @Brian Garrett, this is a great thread, and a bit dated now. How did you solve this problem? I’m in the same boat now and could use your experience! Thanks!
Hey @Brian Garrett, this is a great thread, and a bit dated now. How did you solve this problem? I’m in the same boat now and could use your experience! Thanks!
One option is doing a DSCR loan - Debt Service Coverage Ratio loan also known as Investor Cash Flow loan. You're qualified on the rental income vs mortgage payment (+ HOA if applicable). The appraiser will do a rent schedule. These can be for short term rentals or long term rental. 20%-25% down payment depending on credit score. No income documents required.