How do you get multiple mortgages with BRRRR?

Question

I'm curious about using the BRRRR method and how the bank preapproves an investor with multiple mortgages. When you're ready to purchase additional properties - how do you get approved for the additional debt with your 2nd... 3rd... 4th.. (and beyond) homes?

I understand that you prove legitimacy as an investor with consistent, on-time payments, but how does that formation of trust begin? And what sort of purchasing timeline can you have (# of mortgages you get in the first few years)?

Jeff Dulla · Answer

@Samantha Wells It’s not based so much on just trust as it is documentation. Ideally, as you progress as an investor, you will qualify based on your tax returns. As most investors collect properties, they form an LLC (or multiple LLCs) that will flow through your schedule E on your personal returns. When your starting out, you can also use a signed lease and proof of deposit to prove rental income. To qualify for rent on the property you are purchasing, the appraiser will do a rent schedule to determine fair market rents for qualification.

Jennifer Ramsey · Answer

@Samantha W During the approval process, banks take into consideration your debt to income ratio. With income producing properties your debt can be offset by rental income (you will need to provide the rental roll).

Max number of loans is 10 (hopefully 25 in the near future). You can bypass that limitation by establishing a commercial loan and consolidating all the loans into one larger (portfolio) loan.

In summary, find a property with positive cash flow and don’t let "limitations" stop you from building your rental portfolio because there is usually a work around. Best of luck!

Rashad Luckett · Answer

I am currently on rental #6 all but one using conventional fannie/freddie loans. When i first started and did not have my rental income reporting to schedule e yet, leases were used. If there was no lease, they would use the estimated rental income from the appraisal. With each property my dti has gotten better since the properties are cash flowing so i have no issue qualifying for income. One thing to be aware of is the reserves requirement once you have multiple financed properties.

Andrew Postell · Answer

@Samantha W. in theory, as long as you have your down payment you should ALWAYS be able to afford a rental property.  In theory, the rent you receive from your property will counterbalance the new mortgage.  At least, this is how Fannie Mae and Freddie Mac underwrite their mortgages.  Fannie/Freddie are the loans we want to try to get in the beginning since their terms are so good.  But they are also the agencies that limit us to 10 mortgages type of thing.  So once we are established, and maybe maxed out their loans, then we use portfolio or commercial loans to fund our deals.  And you can use portfolio/commercial loans sooner if you like but in general they have higher rates or some other feature that isn't as good as a Fannie/Freddie loan.  So as long as you have the assets to purchase multiple properties you should be ok...in theory at least.  Feel free to ask more questions if you need. Thanks!

Andrew Postell · Answer

@Eric C. one year of rents on tax returns is totally fine.  Again, a bank may have an "overlay" but Fannie/Freddie are totally ok with 1 year of rental income being on your tax returns.

Andrew Postell · Answer

@William Henning and @Samantha W. this is no problem.  Using an LLC is for liability purposes. When purchasing a property, the property can be absolutely vacant, and Fannie/Freddie will use the rental income from that property to qualify you.  If you currently own properties, and they aren't reporting on your tax returns, then we just use the executed lease to show the rental income.  It doesn't matter what bank account the income goes to or what LLC the property is under.  As long as you have that lease, you are good.  BE VERY CAREFUL THOUGH - a bank may not follow this rule.  There is this thing called "overlays" in the mortgage industry.  An overlay is a rule that a bank puts on TOP of the Fannie/Freddie loans. Usually very big banks have overlays and that's why we talk about using smaller banks.  So when you are interviewing lenders, ask that specific question - "how do you use rental income when it's not on tax returns" - and see what they say.  If they say "we use the lease", then that is a good response.  It should not matter where that income is deposited just as long as you have a lease.  Hope this helps!

Andrew Postell · Answer

@William Henning yes, Fannie/Freddie are ok with that type of a lease.  As long as the underwriter can see which property the lease is for then you are good.  Thanks!

William Henning · Answer

@AndrewPostell and others, thank you for your assistance. More specifically... I have a property in TN that is deeded to an LLC. The lease has the property management company name on it. The articles of the LLC that owns the property do not have member names, only a registered agent. There’s effectively no trail that shows this is my money except for the underlying ownership of the LLC bank account. But I can still use this lease without my name on it as proof of income? No tax returns filed thus far.

Eric C. · Answer

I guess I need to find a lender to work with in CO that can do it off 1 yr for rental income.

How do you get multiple mortgages with BRRRR?

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