BRRRR or using private lending WITHOUT w2?

Question

Hi, I have a W2 right now, but plan to quit w2 for life asap. I have a plan to acquire 1-2 4plexes while on my W2, then moving on to Commercial or use BRRRR.

I have some questions:

1. I understand that for commercial real estate investing, lending banks don't really look at w2, is that the overall experience? So I would be able to get away with not having a w2?

2. If I were to do BRRRR down the line on a 4plex, assuming I have the cash, but NOT a w2, how would I do the refinance part without the W2?

3. Same scenario above, but if it's commercial, let's say a 10plex, for the refinancing the bank would look at it as a commercial and thus I would not need a w2, correct?

4. For private lenders, do they need to look at my w2? Are there any lenders who don't need to look at your w2?

FYI: Assume a credit score of above 740, no bankruptcy.

Brent Coombs · Answer

@Lena Wang, the Refinancing part doesn't presume that the original Buy was bought with all cash, or Conventional Lending, or Privately funded, or HML. It DOES however presume that the Refinancing Lender will give you back ALL of your original outlay, for lower interest and/or longer terms (preferably both).

ie. You'll be 100% leveraged by then, even though you'll still have at least 25% equity according to THEIR appraisal.

Which means the only way to succeed regularly is to only buy SUPER bargains in the first place!

So, will all your Buys STILL cash flow comfortably once 100% Refinanced - regardless of your other income?

THAT'S what your No-W2-income-friendly Lender will want to know. All the best...

Avi Garg · Answer

@Lena Wang

1. Non recourse loan is a type of loan secured by the property itself. If the borrower defaults, then the bank cannot go after the borrower but only seize the collateral i.e. the property.

2. A W2 will be the best option to get a low interest rate conventional loan. However, if you do not have a W2, then you will have to take a higher interest private loan to cash out.

I have also heard that lenders overlook W2 if the deal is good but haven't found one yet and it could be attributed to the fact that I was just getting started. Now I see you have a few rental properties so the banks will look at you differently in terms of net worth, experience etc

Andrew Postell · Answer

@Lena Wang there are a lot of factors that go into an approval for a "commercial" or "portfolio" loan type.  I mean, a lot goes into a "conventional" loan too but every bank will know the conventional rules.  For the conventional/portfolio loans though they are governed by each bank separately.  So in theory, since there are 15,000 banks in the US, that would mean there are 15,000 different portfolio loans.  While I may not be able to speak about each bank's loans I can at least share 2 common concepts for these types of loans:

1.  If the loan needs to ignore income entirely, that means that you will need to have a higher down payment.

2. Portfolio/Commercial loans also have different terms to them than conventional loans.  You may have a significantly higher rate, or if the rate is around the same level then it would be an ARM, or it may only be a 15 year mortgage....or all 3.

You can absolutely get a loan without showing income but I would highly suggest to find a lender in your area that has this type of a loan and talk with them about the terms and conditions of the loan.  Maybe even a mortgage broker in your area would be a good person to speak with since they may have the right connections with a lender already.

Feel free to ask more questions if you need.  Thanks!

Lena Wang · Answer

@Avi Garg Ok ic thanks. yea a non recourse loan is probably what the CRE lenders use mostly then because the criteria is usually based on how strong the deal is.

From all the posts on here by CRE lenders/brokers, 90 percent of them have said that they overlook w2's. So i'm sure if you search/post an ad for CRE lenders on here, you'll find some that don't look at w2's

Lena Wang · Answer

@Avi Garg

Actually many posters are saying that for commercial lost of lenders are willing to overlook w2, or make it a less issue if the property produces good income, ie, has tenants in them already. Meaning that if the actual deal has strong earning potential, etc.

@Andrew Postell thanks for your answers

Lena Wang · Answer

@Avi Garg

1. what is a non-recourse loan?

2. I was told that B(buy with your own cash or private lender with high interest) R(rehab) R(rent) R(refi through conventional loan, which will look at W2..) R(repeat). So given this definition, don't I need a w2 at least in the beginning to refi to get rid of the high interest rate from private lenders?

Avi Garg · Answer

@Lena Wang Here is what I found after not being on W2 for a while.

1. For commercial recourse loans, banks do look at the W2 (unless you have prior relationship with the bank). For the non-recourse loan, the banks do look for net worth, experience etc.

2. After BRRRR, you can get a non-recourse loan from a portfolio lender like B2R (not affiliated to them). They do not look at the W2 but do look at the current rents of the property, so make sure the property is fully rented before you start the process with them. The interest rate is higher as well ~7-8%.

3. See #1.

4. Depending on the lenders, they may or may not look at your W2. I gave one example of portfolio lender. You can search for more here on BP.

Talk to a local bank and see what they can do. I spoke to a lender in a different state, told him my background, RE plans and he mentioned he can help me and we will be doing business shortly.

Hope this helps. If you find anything that is contrary to what I said, do let me know.

BRRRR or using private lending WITHOUT w2?

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