Cash out refi being self employed?

Question

A cash out refinance is an important part of the BRRRR method. I am a first time home buyer and at unease with the tender qualifications that are required while attempting cash refinance while being self employed. Are there any other ways to pull money out of a property, if so what are they? Have you experienced a cash out refinance while being self employed?

It’s early in my journey for both self employed and in the real estate business. All ideas welcome.

Thanks!

It’s early in my journey for both self employed and in the real estate business. All ideas welcome.

Thanks!

Paul Welden · Answer

On 9/21/2020, I closed on a cash out refi on an investment condo and I'm self employed.

The process was NOT easy.

I had to submit:

• 2 years of tax returns for all my businesses, 
• P/L statements for all businesses for past 2 years, 
• P/L statements for all businesses for current YTD, 
• Invoices to prove businesses are still open and operating, 
• E-file tax receipts for 2019 for personal and all businesses, 
• Recent bank statements for personal and all businesses, 
• Etc.

This is not an all inclusive list but just some of the docs the lender requested.

Cash out refi is possible but it's not easy.

I got the best rates/terms/fees by having 75% LTV.

Whitney Hutten · Answer

@Aiden Hatchett Commercial / portfolio lenders are another options.  They look at the property's ability to earn income, not just you.

Andrew Syrios · Answer

Banks may be a bit more cautious with self-employed individuals, but they're still willing to lend to them as long as they have a good track record income and payments wise. We would fit that category, although it's as a real estate company and we've been in business for a while now. My dad got cash-out loans fairly early though when he was self-employed as a real estate investor. There are certainly banks out there that will do it so looking for such a bank is the way I would go.

One other note though. If you get private loans up front to purchase the property, you can simply have the bank pay off that private lender and not pull any cash out. That's a bit easier to convince banks to do, but shouldn't be necessary if you want to buy the property for cash up front and then refinance it later.

Ryan Xu · Answer

If you're going BRRRR, refi is the best. Since you have no other cashflow income, it'll be harder to refinance the project. If you can get a tenant sign a lease when you apply, that'll help a lot. If lack of deposit is an issue, just do some flip-n-sell first stack some cash up then go for BRRRR after.

Other than that, talk to more mortgage brokers just shop around. And you'll learn more when you talk to more people.

Andrew Syrios · Answer

Thanks Aiden! Yes, at closing the bank would pay off the private loan; or more accurately the bank would lend 75% of the appraised value of the property. (This assumes the property has seasoned, i.e. you've owned it long enough to satisfy the bank. Before that, you can only borrow 75% of your costs; purchase and rehab. Ask a bank up front how long their seasoning requirements would be.) The bank's loan would pay off whatever loan you have on the property at closing up to 75% and then you would get the remainder as cash. (Assuming the bank will give a cash out loan; another thing to ask the bank.)

For example, if you have a $60,000 loan on a property and it appraises for $100,000 and the bank is giving you a 75% loan, assuming there are no loan or title fees, the bank would lend you $75,000. The first $60,000 would pay off the loan you have on the property and the next $15,000 would go to you.

Aiden Hatchett · Answer

@Matthew McNeil

Thanks for reply Matthew! What made it easy for you? And what would you do different if you were to start over again? (talking to lenders while self employed)

Aiden Hatchett · Answer

@Whitney Hutten

Thanks for the reply Whitney! I will be sure to take a closer look at commercial and portfolio lenders.

Aiden Hatchett · Answer

@Andrew Syrios

Hey Andrew! Thanks for the reply. I love that you and your dad work in real estate. I want to dig a little deeper about how the banks pay back a private lender. If I wanted to go that route, I would have a private lender loan to me for the purchase and rehab and then the bank would pay the private lender back. I would not refi and take out any cash from the property. Would this strategy be for a flip and sell?

Matthew McNeil · Answer

Yes, no problem.

Aiden Hatchett · Answer

@Ryan Xu Thanks for the reply! I see why the speed of getting a tenant in your rental matters. Flip-n-sells as an alternative to a refinance the first few deals is not a bad idea either. I will be sure to continue shopping around and learning. How did you get started with REI?

Cash out refi being self employed?

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