Littleton, CO · Member since 2018 · 26 posts · 7 votes
Hi All,
I am planning to buy several real estate properties. I have enough cash to buy them, but I have a bit of a unique situation. I have seven figures in wealth (cash and equities), but I have made my businesses super tax efficient such that I have only about $20,000 AGI for tax-reporting purposes. Everything is in IRAs, 401Ks, etc.
So for purposes of getting a lender? I don't show much income. I have heard there are mortgages that you can get that are tied to your assets rather than income. Does anyone know about these?
Would I be way better off to just get a family member with a more traditional financial profile to just cosign the mortgage (in terms of interest rates).
Lender · Western Springs, IL · Member since 2015 · 472 posts · 245 votes
8y
@Tom J. To piggyback off the other post, it depends and there are also different kinds of asset based lending options.
I know of a couple banks that do what is called asset depletion. Most banks allow for asset depletion under normal fannie/freddie guides but the equation they use to calculate the income based on your assets is extremely conservative. The places that are known for "lending off your assets", will take your asset base and dived by 60 (rather than the amortization of the loan - 360, 180, etc). Therefore your assets earn you a higher qualifying income. These loans are priced near market rates.
You also have Non-Prime loans coming back out that will lend based on your business asset accounts and the "cash flow" into those accounts. These loans are typically priced at much higher rates.
Lastly, if you truly have large asset accounts that you can move to a retail bank, you are more than likely going to come across some banks that will do aggressive financing as long as you move a lot of money over to their bank.
Unless you have a large payment on a primary residence, a lot of these investment properties could potentially cover themselves - meaning you don't have to have a really high reported income to qualify. You will get credit for fair market rent when the appraisal is done.
Lender · Western Springs, IL · Member since 2015 · 472 posts · 245 votes
8y
@Tom J. To piggyback off the other post, it depends and there are also different kinds of asset based lending options.
I know of a couple banks that do what is called asset depletion. Most banks allow for asset depletion under normal fannie/freddie guides but the equation they use to calculate the income based on your assets is extremely conservative. The places that are known for "lending off your assets", will take your asset base and dived by 60 (rather than the amortization of the loan - 360, 180, etc). Therefore your assets earn you a higher qualifying income. These loans are priced near market rates.
You also have Non-Prime loans coming back out that will lend based on your business asset accounts and the "cash flow" into those accounts. These loans are typically priced at much higher rates.
Lastly, if you truly have large asset accounts that you can move to a retail bank, you are more than likely going to come across some banks that will do aggressive financing as long as you move a lot of money over to their bank.
Unless you have a large payment on a primary residence, a lot of these investment properties could potentially cover themselves - meaning you don't have to have a really high reported income to qualify. You will get credit for fair market rent when the appraisal is done.
Littleton, CO · Member since 2018 · 26 posts · 7 votes
8y
I should add one more question. Would it be a better deal cost-wise to just get a family member with a traditional (well into six figure) income profile to cosign?
Investor · Grand Junction, CO · Member since 2017 · 207 posts · 201 votes
8y
Originally posted by :
Unless you have a large payment on a primary residence, a lot of these investment properties could potentially cover themselves - meaning you don't have to have a really high reported income to qualify. You will get credit for fair market rent when the appraisal is done.
I thought you had to have two years of tax returns with rental income showing before a lender will give you rent credit, unless it is a house hack. Am I wrong?
Unless you have a large payment on a primary residence, a lot of these investment properties could potentially cover themselves - meaning you don't have to have a really high reported income to qualify. You will get credit for fair market rent when the appraisal is done.
I thought you had to have two years of tax returns with rental income showing before a lender will give you rent credit, unless it is a house hack. Am I wrong?
You aren't wrong (I'm sure you were told that), but also not quite right (what you were told wasn't quite right). What you are describing is a hidden overlay.
I am planning to buy several real estate properties. I have enough cash to buy them, but I have a bit of a unique situation. I have seven figures in wealth (cash and equities), but I have made my businesses super tax efficient such that I have only about $20,000 AGI for tax-reporting purposes. Everything is in IRAs, 401Ks, etc.
So for purposes of getting a lender? I don't show much income. I have heard there are mortgages that you can get that are tied to your assets rather than income. Does anyone know about these?
Would I be way better off to just get a family member with a more traditional financial profile to just cosign the mortgage (in terms of interest rates).
Thanks for any perspective you can provide!
Hi Tom,
If you just want some leverage, but not the massive amount that most of BP advocates, you can get vanilla 30YF Fannie loans just using the rental income, provided that you limit the debt you take out to be such that your net rental income (after paying the mortgages, etc) remains 2.5x your personal housing PITI as well as any monthly consumer debt liabilities (mortgages on cashflow positive properties are an asset, not a liability). This will translate to a DTI in the 40s, which means no day-job income is needed at all. If you wish for more leverage than that, @Jeff Dulla went over some of those options.
You might mix-n-match. Take out as much as you can of the Fannie money (the $20k self employment might let you take on a little more than my 2.5x thing above along would let you), then switch to the options Jeff presented if you still need more.