BRRRR - Qualifying for Refi w/o W2 Employment: Ideas?

[Jason Hartman]

Hello all, I'm a somewhat seasoned buy and hold landlord/investor and understand (sometimes follow) the BRRRR strategy.
I'm currently an employee with a W2 which has of course been instrumental over the years in helping me obtain new financing and in refinancing.  I'm close (within a few months) to being able to completely leave my W2, but am confused as to how those practicing the BRRRR strategy without a W2 are landing long term financing for the refinancing component of the process. I totally understand hard money, short term lending for flips, etc., but I'm particularly interested in being able to qualify to refinance into long term fixed rate loans if I don't have a consistent W2.
I have HELOCs on several properties which will allow me to continue buying, renovating, but then how do I get qualified to refinance after that? Given that HELOCs are adjustable, and that I want that money freed up again after I'm finished renovating, I don't want to rely on the HELOC as my long term financing.
Thanks in advance for any insight!

[Chris Mason]

Originally posted by @Jason Hartman:

Hello all, I'm a somewhat seasoned buy and hold landlord/investor and understand (sometimes follow) the BRRRR strategy.
I'm currently an employee with a W2 which has of course been instrumental over the years in helping me obtain new financing and in refinancing.  I'm close (within a few months) to being able to completely leave my W2, but am confused as to how those practicing the BRRRR strategy without a W2 are landing long term financing for the refinancing component of the process. I totally understand hard money, short term lending for flips, etc., but I'm particularly interested in being able to qualify to refinance into long term fixed rate loans if I don't have a consistent W2.
I have HELOCs on several properties which will allow me to continue buying, renovating, but then how do I get qualified to refinance after that? Given that HELOCs are adjustable, and that I want that money freed up again after I'm finished renovating, I don't want to rely on the HELOC as my long term financing.
Thanks in advance for any insight!

If your only job and source of income is "landlord," the DTI math works out to about 2.5x. It's not really called a "2.5x rule," it's just some math I did to figure out where it winds up. How it works out...

Once all consumer debt is eliminated, and your net monthly cashflow from rentals is 2.5x your personal housing expense, you can continue buying/refinancing cashflow positive rental properties and DTI will work out to be in the Fannie Mae allowable range.

Example: 

- Investor's personal PITI is $2000 per month and they have no other consumer debt.

- 2.5x says they'd need $5000/mo of net monthly cashflow after each property's own mortgages and other expenses. That works out to be $5k/mo.

- DTI is just debt divided by income. $2000 / $5000 = 40%, totally in line with what Fannie wants.

- Provided the investor sticks to cashflow positive deals, DTI will continue to work.

This is non owner occupied investment property math. It's not as generous if getting a mortgage on a property you will live in.

In your case, doing the BRRRR thing, you will want to get the process going the day after your new tenant signs a lease and makes a security deposit.

That 2.5x might seem like a lot. You can treat it as either a goal to shoot for *or* you can start looking into commercial financing.