How do you finance a deal with a down payment and no income?

Question

Hello, bp members. I'm new here my name is Sam and I'm 23. I have a problem to solve. I have a down payment and a fund to live on for a bit set aside, however I have no current income. I would like to buy a small multifamily and live in one apartment. If possible i'd like to avoid using an FHA loan. I think I'm finally going to do it thanks to watching all the inspiring bigger pockets videos on youtube. I really like my current apartment because it's well taken care of. I plan on managing the property myself. I want to give people a nice place to live at a decent price. :) Has anyone bought a property without an income? How did you do it?

Russell Gronsky · Answer

@Samantha Gould, I don't know how you would get financed for a property...unless family/friends believe in you and will give you the money because they like you. Any bank will look at many factors but for a residential loan (which you would need for a building up to 4 units), it mainly comes down to your DTI (debt to income) ratio. This ratio is ideally less than 40%. Some banks will accept higher DTI but not too much higher....and they will give you worse rates as you would be considered high risk. Some local banks may lend based on income of the asset even for a residential but again, rates are higher and you not having any experience as a landlord...probably a long shot. Google asset-based lending to start learning about this.

Most hard money lenders also look at DTI. You can find hard money that looks at teh asset, just like a bank, but hard money interest rates are crazy and you want to refi out ASAP but again, with no income, you'll be hard-pressed to find a lending org to give you money.

That leaves private money that doesn't come from family/friends, but as you can probably guess....with no income and no experience...yeah....

Another point to look at...commercial lending. You'll need a building with 5 or more units to qualify for commercial financing. Depending on how much money you have (the money you mention is for you to live on), it could be enough for the 25% down and the reserves a bank would want to see but this becomes high risk pretty fast since you will be giving up a HUGE chunk of money you have to live on.

Finally, Brandon Turner's book on no and low money down investing can give some ideas on creative financing. The one he always tends to mention is "subject to" which can be lucrative but property owners who may be interested in creative financing are much harder to find.

So all this to say: is it possible to take over a property with no income, yes. Is it likely, definitely not.

Corby Goade · Answer

If you have no income, why would a bank or private lender give you money? How would you make your payments? Sure, you could argue that you'd be collecting rent from your tenants, but good luck finding a multi that has enough positive cash flow to cover the entire mortgage, taxes, insurance, vacancy, maintenance, capex and your living expenses, food, gas, utilities, etc. Even if you did find a property that had such great cash flow, lenders won't count rental income until you've been a landlord for at least two years, and even then they only count 75% of your income.

Have you considered coming at this from a different angle? Instead of asking how to get  a property with no income, thinking about how you might actually get an income?

Have you considered wholesaling? That's the only way I know of to be involved in a RE transaction without having any of your own money, but it's hard work. Especially without any marketing dollars.

Steve Bracero · Answer

@Samantha Gould

Typically, the banks want to see steady income

There's great content on the site about wholesaling !

Brian Garrett · Answer

Good points made here but I want to correct @Russell Gronsky on one thing. You do not need to have 5+ units to qualify for a commercial loan. These loans are available for 1-4 unit properties as well and are quite common for those with income restrictions since they consider the deal itself more than personal financials.

Henri Meli · Answer

@Samantha Gould . See if you can partner with someone who can complement you. You need to provide convincing arguments ...

Charlie DiLisio · Answer

Samantha, you state that you have down payment cash and something left over to live on.  If you have a 20% percent down payment many owners will work with you on owner finance terms.  I have obtained control of a property by using lease options, owner finance and subject to.  It is doable but risky if you run out of cash.  Why not do a joint venture with someone to give yourself a cushion.  You can't count on rents to make your payment.  Just some thoughts.

Russell Gronsky · Answer

@Brian Garrett, I thought that's what asset-based lenders were for in residential multi-family?

Dave P. · Answer

Hi Samantha,

Definitely check out Brandon Turner's book on no and low money down investing.

Thomas S. · Answer

Concentrate your efforts on finding a job and having 2 years of steady solid income before considering purchasing a property.

Getting your personal life on track should be a priority way ahead of buying a property.

You have the cart before the horse at this point in time..

How do you finance a deal with a down payment and no income?

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