How To Buy Multifamily Property with No Job or Income

Discover how to buy multifamily property without a job or income using two key strategies: Non-QM loans and creative financing. Whether you’re recently laid off, in-between jobs, or ready to leave your 9-to-5 behind, these methods can help you overcome financial barriers and build wealth through multifamily real estate investing.

Is This You?

Here are five scenarios. Comment below which one you relate to:

1. Stuck with Single Family Rentals: You’re stuck with single-family rentals that aren’t providing enough cash flow.
2. In Between Jobs: You’ve been laid off or are in between jobs but want to continue investing in commercial property.
3. High Debt-to-Income Ratio: Your personal debt-to-income (DTI) ratio is too high, making it difficult to get a bank loan.
4. Done with the Nine-to-Five: You’re leaving your 9-to-5 job and want to invest in multifamily full-time but don’t know how to secure the necessary loans.
5. Ready for a Change: You’re ready to stop making excuses and start improving your financial life.

Overcoming the Obstacles: Two Key Strategies

Navigating the world of multifamily investment can be daunting, especially when traditional financial paths are blocked. However, two powerful strategies can help you overcome these obstacles and open new doors: the Non-QM (non-qualified mortgage) Multifamily Loan and Creative Financing. By leveraging these methods, you can successfully invest in multifamily properties even without a traditional income source. Let’s dive into the specifics of each strategy and see how they can work for you.

Strategy 1: Non-QM Multifamily Loan

The first strategy involves securing a non-qualified mortgage (non-QM) multifamily loan, known as DSCR (Debt Service Coverage Ratio) loans. These loans primarily depend on the property’s income rather than your income and are designed for credit-worthy borrowers who don’t fit standard lending requirements.

Key Features:

1. No W2, Proof of Income, or Tax Returns Required: Your credit score must be 660 or above.
2. Multifamily Property with 4 to 50 Units: The property must be somewhat stabilized, with no major immediate repairs needed.
3. Max Loan Up to $5 Million: Down payment ranges from 20% to 25%.
4. Higher Interest Rates: Typically 0.5 to 1.25 points above conventional loans.
5. Flexible Loan Terms: Options include 5, 7, or 10-year balloon payments amortized over 30 years, with some loans fixed for 30 years.
6. Interest-Only Payment Option: Up to 10 years of interest-only payments.
7. Foreign Nationals Welcome: Non-U.S. residents can use these loans.
8. Gift Money Accepted: You can use gift money for the down payment, provided you contribute at least 10%.

Important Factor: The property must cash flow at a certain level. The Gross Rental Income (GRI) must be at least 1.1 to 1.2 times greater than your PITI (Principal, Interest, Taxes, and Insurance). Simply put, the DSCR is how much the income covers the mortgage.

Quick Math Example:

• Gross Rental Income (GRI): $10,000/month
• PITI: $8,250/month
• DSCR = GRI / PITI = 1.21

Again, the ideal DSCR is 1.2 or greater for most lenders.

Example Calculation:

Note that a broad and general description of DSCR terms is being used here. There are numerous DSCR loans available, each with varying terms. Since these loans are often provided by private individuals or wealthy companies, there’s no standard set of terms and lenders often create their own terms.

• Property: 8-unit
• Purchase Price: $1,000,000
• Gross Rental Income (GRI): $116,000/year
• Mortgage Balance: $750,000 (with 25% down payment)
• Interest Rate: 8.5%, 30-year amortization
• Principal & Interest Payments: $5,766/month or $69,192/year
• Taxes & Insurance: $18,400/year (Taxes: $12,000, Insurance: $6,400)
• DSCR Calculation:
  • GRI: $116,000
  • PITI: $87,592 (Principal & Interest + Taxes + Insurance)
  • DSCR: 116,000 / 87,592 ≈ 1.32

This deal would attract many DSCR lenders.

Note: Interest-only payments could increase cash flow by $5,400/year.

Strategy 2: Creative Financing

The second approach is creative financing, which negates the need for traditional banks or credit checks and often allows for low down payments. At the core of this strategy is seller motivation, which can be leveraged to structure a deal beneficial to both parties. For a more in-depth training on creative financing techniques, check out Creative Financing in Commercial Real Estate. Here our focus will be on the master lease agreement.

Key Features:

1. No Banks Involved: This is a lease from the seller, requiring no credit check and potentially low down payments.
2. Equitable Title: You gain control of the property, including all cash flow and future equity, without legal title.
3. Seller’s Relief: The seller gets a down payment, monthly interest payments, and relief from operations. You pay off the balance at the end of the lease term, usually about five years.

When to Use the Master Lease:

1. Seller is Tired/Burnt Out: The seller wants to maintain some income but can’t continue managing the property.
2. Avoiding Capital Gains Taxes: The seller wants to sell but delay capital gains taxes.
3. Non-Bankable Properties: Properties with high vacancies, needed repairs, or lack of financial documentation.
4. Seller’s Personal Circumstances: Poor health, financial issues, bad property management, or relocation needs.

Understanding the seller’s motivation is crucial. Structure the deal around their motivations for a win-win situation.

Example Calculation:

• Property: 8-unit property
• Offer: $1,000,000 with 10% down, 5% interest-only payments for five years (10-5-5 terms).
• Mortgage: $900,000 at 5% interest-only = $3,750/month or $45,000/year.
• Cash Flow: Gross rental income of $116,000/year, expenses of $46,000, resulting in an NOI of $70,000.
• Cash-on-Cash Return: 25% (annual cash flow divided by down payment). Aim for at least a 10% cash-on-cash return with master lease agreements.

Buying a multifamily property without a traditional income source is possible with DSCR loans and creative financing. Whether it’s through non-QM loans that assess property cash flow or creative financing that aligns with seller motivations, these strategies are your roadmap to success.

If you have any questions, post a comment below or text PETER to 833-942-4516.

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