How to collateralize property?

Question

Ok so say Ive got a few nice income producing rentals that are owned by my LLC... How do I go to the banks and get additional funding for more property acquisition by collateralizing the existing properties? Ive heard of stories where an investor gets capped at a certain amount of properties they can finance. That to me is BS- if they can keep finding deals and they want to keep expanding they should be allowed to have an infinite amount... is there a trick to purchasing under an LLC vs going in as a person so you'll be able to get approved for much more funding?

Account Closed · Answer

Conventional lenders will cap your residential holdings at a max of 10 mortgages. Dumb, I agree, but that's the world according to Fannie Mae and right now no one is doing anything outside of the box.

Collateralizing just means that you are pledging the collateral in one property to guarantee performance on the subject property. We do this occasionally when we make a private loan if the deal is too "thin" we will also tie up another property in the investor's portfolio to ensure performance.

And having the props "owned" by your LLC is not the same as having the financing originated and vested in the LLC. Maybe I need some clarification here...

Typically, you have a couple of options -

1) Refinance your props into a loan in the name of your LLC. You'll need 30% equity but it will come off your personal credit.

2) Refinance your props into a commercial blanket loan. This is tougher but it means you'll consolidate 10 loans into 1. They must have 25% equity and cash flow.

OR, if you are looking for a line of credit using the equity in your holdings as collateral, you'll need a good equity %. Many people think that if they are at 80% LTV, a bank will give them a LOC equal to the remaining 20% to theoretically leverage the prop to 100% - this is not the case.

For both options many of my clients are having good luck with portfolio lenders such as credit unions.

Steven Brown · Answer

There are a lot of "tricks" to commercial credit. Although I agree with you on the number of deals, the banks do not and since they have the money they set the rules. That being said, if you do build your corporate credit you can borrow more in that manner. One of the best things to do is go to a small community bank. They normally will keep the deal in house and it will not show on your credit report so you can do that with multiple ones all at the same time.