3 perfectly purchased BRRRRs but cant find lender for refinances

34 Replies

My partner and I closed on our first 3 rental properties between March 15th and April 27th. All 3 properties were purchased with cash and placed in our LLC. We have not been able to find a lender that will cash out refi to an LLC held property. At best we have been recommended to put the properties into our names and then after refi put the properties back in the LLC. I believe that would defeat the whole purpose of the llc (pierce the corporate veil)? This was never mentioned in any of our research the difficulty of finding a lender on LLC held properties. We are starting to wish we just put them in our names. Last night i made a list of zillows top 50 customer rated lenders for my local area and i have called all 50 today with zero luck. I would appreciate any and all input! We currently have 2 more deals waiting for us to buy but all of our money is wrapped up in the 3 properties. We are hoping to find a lender that will let us refi with property held in LLC and a 75% LTV. Property details below

Property 1

110k purchase price 39k rehab 200k ARV 1850 rent

Property 2

57k purchase price No Rehab (inherited tenants) 80k ARV 1100 rent

Property 3

95k purchase price 16k rehab 150k ARV 1650 projected rent (~2 weeks of work left before ready to rent)

@Michael Conte

Can't really get a conventional/traditional residential mortgage loan with the LLC listed as the borrower.

You can keep the properties titled to your LLC up to the point where you are about to close on the cashout refi. You will need to tell the lender and title company that the properties will be quit claimed from LLC to your personal names right before closing (title can do that for you). Then your new loan(s) will be in your personal names.

I did that last year ... super easy. 

Then, you could do a quit claim back into the LLC name, but be careful because that could trigger the "due on sale" clause written in the mortgage note. Even if you successfully did this, remember that the mortgage is in your name but the ownership is in the LLC name ... sounds like a bit of comingling and could be a port of entry to "pierce the corporate veil."

I'm not an attorney or a lender and you should definitely seek professional guidance for this. 

Best of luck! 

@Michael Conte I know nothing about this maybe someone else can chime in here. Can they do a portfolio type lending package? I know it’s only three properties but it might be an option. I don’t know the requirements but I just saw one with a requirement of 5 properties but the second lender had a minimum requirement of $100,000. So you might reach out to a portfolio lender and see if you could bundle the three together in one loan.

@Michael Conte , where are the properties located?  They may all want to wait for a seasoning period of 6 months to pass.  Were any mortgage brokers, or all direct to banks?  You may need to deal with a company like Civic in the meantime to get your cash out.

@Michael Conte  

Similar to what @Scott Wolf mentioned you are going to have to work with a private/hard money lender in order to get what you want. Be aware that you will most likely have to cross collateralize all the properties to qualify. You may run into an issue on value for the property that no work was completed on. Most companies will not give you the ARV since no equity was put into the asset. You should also prepare for higher rates/fees when dealing with the specialized lenders; however, they will let you close in an LLC, close quicker, and require less documentation.

Originally posted by @Michael Conte :

My partner and I closed on our first 3 rental properties between March 15th and April 27th. All 3 properties were purchased with cash and placed in our LLC. We have not been able to find a lender that will cash out refi to an LLC held property. At best we have been recommended to put the properties into our names and then after refi put the properties back in the LLC. I believe that would defeat the whole purpose of the llc (pierce the corporate veil)? This was never mentioned in any of our research the difficulty of finding a lender on LLC held properties. We are starting to wish we just put them in our names. Last night i made a list of zillows top 50 customer rated lenders for my local area and i have called all 50 today with zero luck. I would appreciate any and all input! We currently have 2 more deals waiting for us to buy but all of our money is wrapped up in the 3 properties. We are hoping to find a lender that will let us refi with property held in LLC and a 75% LTV. Property details below

Property 1

110k purchase price 39k rehab 200k ARV 1850 rent

Property 2

57k purchase price No Rehab (inherited tenants) 80k ARV 1100 rent

Property 3

95k purchase price 16k rehab 150k ARV 1650 projected rent (~2 weeks of work left before ready to rent)

U will have to put them in your personal name if you want favorable long term interest rates.. you can go to investor loans but rates are in the 6s to 7s plus cash out is probably going to be based on your purchase price. this is why the BRRR as talked about and written about is not always all that its cracked up to be.. you could have just put 25% down got the best rates one set of closing cost now you have two etc to end up at the exact same place.. lenders are very careful with cash out loans

 

@Paul Welden This is exactly what was recommended by multiple lenders but like we've both pointed out it pierces the veil. I think this will be our last option if we cant get it done in the llc. Thanks for the reply!

@Eric James Thanks for the input. I'll be sure to bring that up

@Alecia Loveless good thought! Since posting ive spoke with 2 portfolio lenders whose main requirements we didnt fit was the minimum property value of 100k on the one property. 

@Scott Wolf all three properties are in NJ. None of the lenders i spoke with mentioned any seasoning periods. their biggest concern was the properties being held by our LLC. I haven't heard of Civic but will definitely look into them, thanks!

@Daniel Molina i did manage to come across one lender today that was open to it. The issue they had with the property that had no repairs was the value being under 100k. you are also right about the rates, the lender i spoke with says they would be starting at 4.5% for 30 year. Thanks for the info!

@Jay Hinrichs good to know. The BRRRR though would be smooth sailing if the properties were just held in our names and not the LLC. Ive previously spoke with the main investor friendly lender in town and he said he would be able to do 75% LTV cash out refi around 3.25% if we put the properties in our names. my next step right now is finding an asset protection lawyer to get their opinion on using the LLC properly or just putting the properties in our names and using an umbrella policy

Originally posted by @Michael Conte :

@Paul Welden This is exactly what was recommended by multiple lenders but like we've both pointed out it pierces the veil. I think this will be our last option if we cant get it done in the llc. Thanks for the reply!

@Eric James Thanks for the input. I'll be sure to bring that up

@Alecia Loveless good thought! Since posting ive spoke with 2 portfolio lenders whose main requirements we didnt fit was the minimum property value of 100k on the one property. 

@Scott Wolf all three properties are in NJ. None of the lenders i spoke with mentioned any seasoning periods. their biggest concern was the properties being held by our LLC. I haven't heard of Civic but will definitely look into them, thanks!

@Daniel Molina i did manage to come across one lender today that was open to it. The issue they had with the property that had no repairs was the value being under 100k. you are also right about the rates, the lender i spoke with says they would be starting at 4.5% for 30 year. Thanks for the info!

@Jay Hinrichs good to know. The BRRRR though would be smooth sailing if the properties were just held in our names and not the LLC. Ive previously spoke with the main investor friendly lender in town and he said he would be able to do 75% LTV cash out refi around 3.25% if we put the properties in our names. my next step right now is finding an asset protection lawyer to get their opinion on using the LLC properly or just putting the properties in our names and using an umbrella policy

Just get your umbrella policy closely held LLC is no protection anyway.. if there are multiple members thats different

 

Originally posted by @Michael Conte :

@Jay Hinrichs the llc is a 2 member partnership which was the main reason we went with it

OK keep in mind SFR rentals that are well maintained are very low risk thats why umbrella policies are so cheap

But either way.. If someone thinks you personally did something your going to get sued no matter if its an LLC or not.

 

@Michael Conte

I think you can keep the LLC name as the borrower if you do a non-QM mortgage.

So, check out non-QM lenders but you're probably going to may more in rates and fees compared to a traditional conventional mortgage. 

The trade off being that you may be able to get that LLC protection you're looking for, but it will probably come at a cost.

Hope this helps! 

@Michael Conte

You can refinance two of them in August with very favorable rates (in the 4's right now on a 30 year fixed with 2-3 points).  The little one is going to be a problem because of the loan size. You may want to go to a local bank for that.

You can either leave them in the LLC or do them in your personal name. These aren't Fannie/Freddie loans and there are plenty of brokers here on BP that will do them all day long.

Stephanie

Originally posted by @Michael Conte :

@Jay Hinrichs the llc is a 2 member partnership which was the main reason we went with it

On small stuff I'd probably own as TIC with %s listed and have a JV Agreement on the side. No refi issues yet interests still protected.

I'm with Jay. Little house LLCs for asset protection cause more harm than prevent.  You're seeing it now. 

Originally posted by @Steve Vaughan :
Originally posted by @Michael Conte:

@Jay Hinrichs the llc is a 2 member partnership which was the main reason we went with it

On small stuff I'd probably own as TIC with %s listed and have a JV Agreement on the side. No refi issues yet interests still protected.

I'm with Jay. Little house LLCs for asset protection cause more harm than prevent.  You're seeing it now.

with the TIC I do want to emphasize a very well thought out JV agreement.. Also asset protection is generally thought of if you have a LOT of assets or CASH equity its really personal situation .. for most starting that only have say 25% equity in 200k worth of property and Not a lot of other holdings or cash.. your kind of judgement proof anywho.. but good insurance is the best just make sure you fully understand what it will cover you for.. they love to deny claims as we all know.

 

@Michael Conte

Michael - lots of good feedback from others on your question.

1) You can get perm financing on these at 75% cash out without changing ownership (keep them in the LLC)

2) 30 yr fixed at 75% with Cash out would be around 4-4.5%. Lower if you pay discount points (down to 3.75%)

3) you could do individual loans or blanket, individual gives you more flexibility to sell/refi as need on each property.

4) you will need 6 months seasoning before the new value can be used for the 75%. If you had debt the seasoning is shortened to 3 months.

Happy to connect with you and others following this and put you in touch with the right person to get these loans done.

@Paul Welden your spot on with the increased rates and fees. i was in contact with a few lenders today that could get it done (75% LTV and let me hold property in LLC) and all their 30 year rates started at 4.25%

@Matt M. half and half. We wanted a separate entity to run the business through and the added protection was a plus.

@Stephanie P. Thank you for the useful insight!

@Steve Vaughan our lawyer had recommended TIC but thought it would be best to form the LLC and have all transactions go through there.

@Jay Hinrichs could you elaborate on "your kind of judgement proof"?  not entirely sure what you mean. also, we had planned to scale rather quickly so we thought the llc would be advantageous for that as well. assuming we could get these cashouts complete, 1M worth of property by the end of the year was the goal

Originally posted by @Michael Conte :

@Paul Welden your spot on with the increased rates and fees. i was in contact with a few lenders today that could get it done (75% LTV and let me hold property in LLC) and all their 30 year rates started at 4.25%

@Matt M. half and half. We wanted a separate entity to run the business through and the added protection was a plus.

@Stephanie P. Thank you for the useful insight!

@Steve Vaughan our lawyer had recommended TIC but thought it would be best to form the LLC and have all transactions go through there.

@Jay Hinrichs could you elaborate on "your kind of judgement proof"?  not entirely sure what you mean. also, we had planned to scale rather quickly so we thought the llc would be advantageous for that as well. assuming we could get these cashouts complete, 1M worth of property by the end of the year was the goal

what I mean is if your get sued and the grand total of your assets is 50 in equity on 200k of property your not a big target.. plus they would only get the 50k if they went through 50k of litigation to get 50k then a charging order to sell the property.

but if the LLC gives you comfort and you feel its bullit proof for some lawsuit because your a bad landlord then its not a big deal.. but yes if you have a partner and your going to scale to multi millions LLC is just fine.. and done every day.. the Managing members have more exposure than say two member one who is just a member and the other who is managing..

but reality is if you get sued I will pretty much guarantee you your going to get named personally.. LLC is just a fine vehicle just not the asset protection vehicle that many think it is.

Asset protection for multi millions in TRUE equity is done with a combination of all these instruments and usually will cost you 25 to 40k to set up with any hope of really sheltering yourself.. 

certain family trusts etc are what the wealthier folks use for asset protection.. they use LLC for just ease of book keeping and not having to have mandatory meetings. etc.

For me personally litigation has 100% been contractual squabbles   having owned hundreds of rental houses I never once got sued by a tenant.  but maybe that's just lucky on my part..  I keep good insurance likability and umbrellas for the few rentals I still own. I have much more liability in the building trades than a landlord.  And we pay dearly for the proper insurance for that activity.

 

@Michael Conte - the cash out refinance loan through an LLC that you seek absolutely exists; we just closed one this month. So here's some thoughts:

1.  The banks we have used for the cash-out refinances are banks that we already have a long term (years) established track record with.  

2. The loan was issued to the LLC, not us individually; the SFH is owned by the LLC, not us individually

3.  It is a 5 year fixed rate at 4% with no points;  it has a balloon at the end which we will simply refinance when the 5 years is up (if we still own the property)

4. The loan is held and serviced by the bank itself;  it is NOT a federally back mortgage, and is highly unlikely to be sold to another institution 

5. Banks require a personal guarantee (if the LLC fails, the individual owners of the LLC still "guarantee" the loan)

6.  There is no seasoning period whatsoever

7.  I have no idea if your state has any restrictions on these types of loans for any reason

The key is you need to have a good business relationship with bank(s) to do this - good relationship does not necessarily mean wealth, but means you've done other business with them, and your personal financials make you a relatively safe bet.  

@Michael S. thank you for reassuring that this could be done, especially at a non cashflow killing rate. I have a meeting set up tomorrow with a local small bank i am hoping goes well. unfortunately my partner and myself have done all of our personal bankings and our individual businesses bankings at big name banks and they dont provide the current service we are looking for 

@Michael Conte - yes, try your local banks first, as you have planned - by local, I mean banks only in your state, and basically have 2 to 8 branches maximum - these banks typically prioritize local investors, even if you don't have a relationship with them previously; regional banks, those that overlap several states in a region, are also usually good bets as well, but they usually prefer those with previous business relationships (aka previous loans that have shown a track record of paying on time) - but if you are willing to set up multiple lines with them (business checking for your LLC, for example), they might be willing to do a loan with you as well. Stay away from the national banks - our LLCs are way too small for them.