Can't show income so what are my loan options?

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Can't show income so what are my loan options?

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

I've read how people create an LLC for their REI adventures and secure commercial loans versus getting conventional loans under their personal names. To my understanding the commercial loans closer quicker and are an easier process overall with an average interest rate of about 5%. My question is can I set up a new LLC and still secure a commercial loan or does the LLC have to already have a proven track record and established credit history? It seems that I can't go the conventional loan route under my personal name because I have no W2 income since I was self employed for the last 10 years and I have been transitioning out of those business endeavors for the last 2 years therefore I have no real income to show right now. If I can't go the LLC and commercial loan route then what are my options? I guess it would have to be either cash buys, HML's or private money at that point?

Also can I still do a cash out refinance on a property that's owned through an LLC? For example if I want to utilize the BRRRR strategy I will eventually need to pull out cash to reinvest.

I appreciate your input and advice. Thanks in advance!

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David Faulkner
Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
9y

Get a JOB in RE to earn while you learn and build investment capital. 2 birds, 1 stone.

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  • Dilpreet Singh
    Investor · Des Moines, IA · Member since 2015 · 40 posts · 10 votes
    9y

    Alright so an LLC does not have it's own credit history or record. It is all under your name and the LLC is a way you project your assets. Since you have no income cash buys, HML, contract buys, etc are the only options. Yes, you can do an cash out refinance with LLC but one again you need income.

    If you have been self employed for ten years and able to show taxes and income coming into your accounts banks will work with you. W2's are just much faster 

    1Reply
  • Brian Garrett
    OP
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    9y

    Thank you for the response. I haven't been working the last 2 years so I don't have any income to show from that time period, that's the problem. I was told that you can get funding through an LLC without your personal credit being involved. Perhaps that was just inaccurate information? Anyone else have insight on this or any first hand experience? Thank you.

    0Reply
  • Brian Garrett
    OP
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    9y

    @Dilpreet Singh The tag didn't work in the above post.

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  • Natalie KolodijBusiness Member
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    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    9y

    You likely won't be able to on a brand new LLC that doesn't already have any assets

    The bank needs something to meet their lending requirements and because you filed for an LLC does't mean any thing really. You need to either be able to qualify yourself, or have a business with some worth behind it.

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  • Dilpreet Singh
    Investor · Des Moines, IA · Member since 2015 · 40 posts · 10 votes
    9y

    @Brian Garrett your best option at this point might be to find someone to co-sign or a partnership to go in with. A lot of times you will see family co-sign first one or two places to help start the business. 

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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 @Natalie Kolodij:

    You likely won't be able to on a brand new LLC that doesn't already have any assets

    The bank needs something to meet their lending requirements and because you filed for an LLC does't mean any thing really. You need to either be able to qualify yourself, or have a business with some worth behind it.

    That's what I would assume however I'm hearing conflicting opinions and I'm really looking for some solid facts. One lender posted that the LLC does not need any previous credit history.

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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 @Dilpreet Singh:

    @Brian Garrett your best option at this point might be to find someone to co-sign or a partnership to go in with. A lot of times you will see family co-sign first one or two places to help start the business. 

    I need to be able to refinance for the BRRRR strategy.

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  • Brian Garrett
    OP
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    9y

    There's got to be a way for those of us who can't show income to still be able to implement the BRRRR strategy. Or at least I'm hoping so?

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Brian Garrett  not with a lending company that is in the business of making loans.

    Maybe find a private party at private party rates and terms.

    HML these days MAYBE but most will run your income and fico etc.

    but banks and other institutional lenders will require tax returns for the LLC and prersonal

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  • David Faulkner
    Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
    9y

    Get a JOB in RE to earn while you learn and build investment capital. 2 birds, 1 stone.

    2Reply
  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    9y

    Secondary market and hard money lenders.

    0Reply
  • 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  not with a lending company that is in the business of making loans.

    Maybe find a private party at private party rates and terms.

    HML these days MAYBE but most will run your income and fico etc.

    but banks and other institutional lenders will require tax returns for the LLC and prersonal

    So what do you suggest I do? I have cash, I have a great credit score and I have no debt. I'm planning to use cash for some flip deals to build more working capital but that still doesn't help me with being able to buy BRRRR cash flow properties. Any advice?

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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 @David Faulkner:

    Get a JOB in RE to earn while you learn and build investment capital. 2 birds, 1 stone.

    I have investment capital that's not a problem. The problem is not being able to show proof of income. I have cash, I have a great credit score and I have zero debt. Finding money isn't the problem it's being able to leverage in order to use the BRRRR strategy that's the issue. What do you suggest? I'm stuck between a rock and a hard place because even though I plan on using cash for flips to continue to build working capital I still want to be able to place tenants in some buy and hold properties to generate cash flow and then cash out refinance to keep rolling the money over into new properties in order to build up my portfolio. Any advice is appreciated. Thanks David!

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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 @Ian Walsh:

    Secondary market and hard money lenders.

    How would a cash out refinance work through either of those options? That's the main part I'm trying to figure out.

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Brian Garrett  Try:

    Lima One

    Try:  lendingone

    Try :  Lendinghome

    Try ; Cogo capital

    Try: Peak

    I know Peak has a non recourse product at 50 to 60% LTV with 8 to 10 points and 8 to 9% interest

    I feel what your going through I was in the same boat from 2009 to 2011 when we had to disgourge a bunch of real estate and my tax returns were deep in the red.. I could not get even a owner occ loan at 25% LTV..

    you must have tax returns to get conventional or low rates. Now I was still able to keep my commercial credit but that was ONLY because of a 2 decade plus relationship with one particular bank that went to bat for me.. but I was on a VERY short leash.. but it was worth it now that we have bounced back deep into the black I am back to being the largest or ( one of ) largest borrowers at that bank and I finally got a 50% LTV owner occ loan on my home in Lake Oswego.

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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  Try:

    Lima One

    Try:  lendingone

    Try :  Lendinghome

    Try ; Cogo capital

    Try: Peak

    I know Peak has a non recourse product at 50 to 60% LTV with 8 to 10 points and 8 to 9% interest

    I feel what your going through I was in the same boat from 2009 to 2011 when we had to disgourge a bunch of real estate and my tax returns were deep in the red.. I could not get even a owner occ loan at 25% LTV..

    you must have tax returns to get conventional or low rates. Now I was still able to keep my commercial credit but that was ONLY because of a 2 decade plus relationship with one particular bank that went to bat for me.. but I was on a VERY short leash.. but it was worth it now that we have bounced back deep into the black I am back to being the largest or ( one of ) largest borrowers at that bank and I finally got a 50% LTV owner occ loan on my home in Lake Oswego.

    Thank you for the suggestions Jay. Let me ask you this since you brought up the point of having a lengthy relationship with your bank. I've also had a long and great relationship with my bank as well and I have a decent amount of cash parked with them and have a credit card through them with zero debt. Any chance they would make an exception for conventional? Obviously I plan on asking them but I'm just curious if there's any chance of that scenario or if it's just a long shot pipe dream.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Brian Garrett  if its a small community bank with say 200 to 300 million.. and you have 500 to 1 million in cash in the bank then yes.

    if its a big bank or regional multi billion dollar bank and you have 100k with them.. then no.

    A community bank on a non owner occ if they want to set up a facility for you would do 5 year amortized over 20 70 to 75% LTV on THEIR appraisal.

    fee is usually 1 point and 5.5 to 6.5%  that's what I get on my turn and burn stuff and my construction loans ..

    if your looking to match the lowest rates you see from national banks which is just a tad under 5% these days and 30 year am..   NOPE only those institutions have those loans as they are all sold .

    the loans above are held in the banks portfolio.. but each region is different I am really  only familiar with my banks in Oregon and my bank in Charelston SC.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Brian Garrett  plus if this is your first attempt to get a loan from them and you have zero income on your tax returns then I would say no hope at all.

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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  if its a small community bank with say 200 to 300 million.. and you have 500 to 1 million in cash in the bank then yes.

    if its a big bank or regional multi billion dollar bank and you have 100k with them.. then no.

    A community bank on a non owner occ if they want to set up a facility for you would do 5 year amortized over 20 70 to 75% LTV on THEIR appraisal.

    fee is usually 1 point and 5.5 to 6.5%  that's what I get on my turn and burn stuff and my construction loans ..

    if your looking to match the lowest rates you see from national banks which is just a tad under 5% these days and 30 year am..   NOPE only those institutions have those loans as they are all sold .

    the loans above are held in the banks portfolio.. but each region is different I am really  only familiar with my banks in Oregon and my bank in Charelston SC.

    I'm with a major bank probably the largest in the country so that route most likely won't work given your response. I guess once I'm ready to buy a property I'll just have to keep calling around until someone makes the deal work. I was just hoping to get my "ducks in a row" so I don't lose out on a property because I'm trying to find lending at that time. I wanted to try and have things lined up in advance to make the process more time efficient and run a bit smoother.

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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  plus if this is your first attempt to get a loan from them and you have zero income on your tax returns then I would say no hope at all.

    I've gotten approved for decent auto loans through them (the last one they approved me for was for over $85k) but I have never purchased a home before or carried any sort of mortgage through them or anyone else. I'm not sure if the qualification requirements are similar or not but I would assume they would be a bit stricter and tighter on a home loan than an automobile. Guess it's always worth a shot though when the time comes. Worst they can say is no!

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Brian Garrett  all you have to do is fog a mirror for a car loan.. Real estate is totally different and if its the biggest bank then they don't hold the paper your best off starting to look small bank and or credit union.

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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  all you have to do is fog a mirror for a car loan.. Real estate is totally different and if its the biggest bank then they don't hold the paper your best off starting to look small bank and or credit union.

    I do have a small but previous relationship with a local credit union so I will reach out to them as well. Thank you for all of your insight and advice Jay. I know time is money in a lot of our worlds so I do greatly appreciate you taking the time to help out. It may be tough given my circumstances but at least now I know that it's doable and there are some options that could work.

    0Reply
  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    9y

    @Brian Garrett

    There are no income verification products out there for people in your situation.

    They do not reflect conventional rates or fees, but they are out there and they close in 30 days if you get your conditions in and the appraiser acts right.

    Stephanie

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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 @Stephanie P.:

    @Brian Garrett

    There are no income verification products out there for people in your situation.

    They do not reflect conventional rates or fees, but they are out there and they close in 30 days if you get your conditions in and the appraiser acts right.

    Stephanie

    What are the typical terms so I can compare to conventional rates and fees?

    Also, 30 days to close seems slow for private lending. I thought private lenders and such typically were much faster and an easier process overall compared to conventional lending.

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  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    9y

    @brian garrett

    Some in the private/hard money game will tell you they can close in 7 days etc...and I'm sure it's true, but that's not what I'm talking about.  I haven't seen a real commercial appraisal come back in a week. That's not realistic.

    I'm talking about permanent, commercial financing with a 30 year amortization.  This isn't a 12 month interest only proposition.  The loans I'm describing take your credit and those of the other members of the llc into account, they look at the property and your assets and that's it.  Most of the time is spent waiting on the appraisal, the appraisal review and the borrower to get their conditions in correctly.  It's an easy process, but still takes some time to do.

    You're looking at rates in the 7's on a 3/27 and points range from 2 to 4 depending on the loan size.  Fees for underwriting and processing are around $2500.  

    Conventional financing is obviously the best way to go if you can do it. We always recommend exhausting that avenue first to save everyone some time, but in the scenario you described above, you can't (for at least 2 years), so this is your next best alternative; if you're going to do anything.

    Stephanie

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