Rental Property Investor · San Jose, CA · Member since 2018 · 42 posts · 22 votes
I have a couple of paid-off rental properties in the midwest that I acquired in the last few months. I am working with a legal team to get these properties under a legal entity. I am thinking of taking heloc for those properties and using that to acquire more investment properties. I will really appreciate if someone can share the best strategy to accomplish that or aware of any pitfalls to avoid. Thanks in advance
@Arif Siddiqi This is how I do it. Penfed is who you are looking for. Open a savings acct online ($5 minimum) and you are a member. Super easy. 80% LTV on NOO rentals, your choice if you want interest only as a payback option and WAY cheaper closing costs than a conventional loan. Takes around 30 days to complete the loan. They will do 3 NOO properties max plus your primary residence.
The list of lenders who offer HELOCs on rental properties is small. There are some who do though (I know because I have a couple). However, you are going to have an extremely difficult time finding a lender who will do a HELOC on a rental property held in a LLC.
So, the "pitfall" could be that you'd transfer these properties into a LLC and then not be able to get a HELOC on them.
You'll likely need to decide what's more important to you - having the properties in a LLC or getting a HELOC, because you might not be able to do both. At a minimum, I'd call around and see if you can even find a lender who will do a HELOC on a rental property in a LLC so you'll know what your options are before you transfer them.
just curious, why wouldn't you consider a regular conventional loan?
There are definitely banks that would give you a mortgage under an llc like any commercial mortgage (just not sure how many properties, and all other requirements )
@Arif Siddiqi This is how I do it. Penfed is who you are looking for. Open a savings acct online ($5 minimum) and you are a member. Super easy. 80% LTV on NOO rentals, your choice if you want interest only as a payback option and WAY cheaper closing costs than a conventional loan. Takes around 30 days to complete the loan. They will do 3 NOO properties max plus your primary residence.
@Arif Siddiqi, call a bunch of local small town banks and talk to their mortgage lending section. If the individual prices are less than they are willing to lend, ask them to consider a blanket commercial loan. The rate will be higher, because of the commercial loan, and the terms will be different than a standard conventional loan. 20 year amm as opposed to the usual 30 is an example. If you call enough banks, you will find one that does it. The ones that I have used have all asked me to do some other type of banking with them as well, business checking with a credit card for example. Good luck!
@Arif Siddiqi They are not under a legal entity. I have 5 and there is really no benefit to having them in an LLC until I scale up further. The tax burden still falls to me personally. If you must have them in an LLC you will find that you'll have to get the loans or HELOCs in your name and then put them in the name of your LLC or finance them commercially which could be another set of issues depending on your strategy.
Yes, the value of your midwest homes may be too low to individually refinance. But what was being referred to above was if you are going to transfer to LLC, then you can get a portfolio loan. Then will allow you to place a lien on all the properties and walk away with more capital to invest.
Ultimately, you have to decide if the LLC protection is more important, or the flexibility of the HELOC. The LLC has some tax benefits (briefly mentioned above) in the fact that now you can itemize much more, even though it will still act as a pass-through entity at the end of the year. The primary benefit of the LLC is asset protection. Ensuring the tenant (or anyone who may sue you in the world outside of real estate) cannot sue you and have access to ALL of your assets.
And ultimately, say you decide HELOC is more important now, then you can do an LLC later on. Nothing is permanent. Best of luck.
@Arif Siddiqi yes, it is possible. I’ve done it myself. The key for me is that I went to a local bank and developed a relationship with my loan officer.
I also have used penfed, they are great, and the market value they assigned the property was a good bit higher than I was hoping for. Which meant that I was able to have access to more money.
You can also go with the portfolio loan in route. Or it is also possible to find someone that will lend commercially on individual properties, despite the low home value. Just keep calling! Most will tell you it is not possible, and wonder why you are even trying. But if you keep going you will find a lender or two that will do it and it will not seem that strange to them 
I was able to get a HELOC on rental property owned by an LLC at a local credit union. I had to open an account in the business name but I don't have to have any type of deposit account with them. I agree .. keep calling around! There is a lot of value in having a HELOC if you only want to use it sporadically to self-fund a flip or to get a new rental up and running. The downside to using it to self-fund a rental is that you still have to find long-term financing at some point for the rental so it could be best to just get long-term financing now on the full portfolio.
If you really want to move everything into an LLC but individual values are too low to refi(or can't be done in the LLC), have you looked into a portfolio loan?
You'll need to ask around to see who can do it around you. The length of time of ownership etc will come into play but may be worth checking out.
@Taylor Chiu Can you explain further the terms you were able to get for your previous HELOC loans from Penfed? What was the inventive to get a HELOC vs a home equity loan?
@Dave DeMarco My understanding from my call to Pen Fed today is if you have up to 3 rentals and no primary they will do a Heloc on each one, however if you currently have 4 properties total and 1 is a primary residence, the Heloc is limited to your primary only and they will not issue a Heloc on the rentals. Just want to give a heads up.
@Julie Coleman currently 80% LTV on rental, 12 year draw, variable rate = prime + 1%, no closing costs unless a physical appraisal is needed, no yearly fee, but if it's closed within 2 years the closing costs are then incurred which average $400-$600, I/O or P/I payments your choice. Not sure what the termis on the P/I option.
@Julie Coleman If I recall right, the terms were for the heloc were pretty much the same as the home equity loan. I just preferred not being charged interest if I wasn’t utilizing it at any given time