Lending vs Income Doc Scenario with BRRRR Method

[Zack Thiesen]

I am a little skiddish about posting what might be a stupid question.. I am currently closing on my first rental that I bought here in California three years ago and if all goes well I should be up $120k sooner than later. I will be leaving for another state after that to pursue investing more seriously and hopefully, full time.

My question is about income documentation for the cash out refi's that I will encounter, because I sure as heck won't do all this only to arrive there and discover that I was dreaming. I am a carpenter by trade and enjoyed living essentially free in one of the units of the building I own. As such, there were several months and periods of time that I did not have income, just money saved, and went to help out my family down south. 

Long story short... (And this would be in a region/market with an avg home price of $75k and avg per capita income of about $17k) If I purchase a property in good condition outright for around $50k, and then finance another with money down and use the house I bought as collateral, is that a viable plan in any reality? I will be moving there to work on the homes myself and with others I hire and won't be employed in another way. I will perhaps be there for 6 months or so for the entire process from property search to employing a PM company. Then I will head back to California to work for a while and come back the next year to cash-out refi and do it again.

I apologize if it sounds like a foolish scenario.. I just imagine banks won't like breaks in employment and irregularities like that. I have read about things like no-doc loans, using assets as collateral for loans etc. and am just curious how that would work in a BRRRR'ing strategy or if you would hit a wall somewhere.

No-doc seems a little unbelievable, hard to imagine they still exist.. do they? My experience the first time around in real estate was that I really had to ask around... A LOT. And I learned a lot. I will never forget the first lender I went to they said no way. Many, many phone calls, meetings and inquiries later I went through the process without a hitch with a loan officer at a Wells Fargo branch that is 6 hours from where I live. So I figured I would ask around for advice in this next step in my investing journey too.

Thanks

, Zack

[Kerry Baird]

Banks are looking at your DTI. Your personal credit and income plus expenses are figured in, and 2 years of personal tax returns to show it.
There are lenders that will look at the debt service coverage ratio, which shows that the property makes money. You can start asking in the small local community banks in the area local to the property.
Commercial mortgages may be the way forward. @Stephanie P. might give an idea of what to expect with rates and terms, and whether this is feasible. And then there are portfolio lenders or non-am lenders who can be all kinds of flexible. 

What probably won’t work: big WF, BofA, Chase and so forth, unless you talk with the commercial side of the house.