HELOC needs Quit Claim Deed??

Question

Hey everyone,

First timer here to BP but already loving the networking and knowledge in this group.
I'm trying to get my first HELOC done so I can continue to acquire more doors. I'm having troubles getting approved for the loan.
I talked to two different local credit unions about pulling 300K in locked equity out of our former primary home that we converted to a short term rental last year. I am self-employed so it was a challenge just to get a loan in general, not being a traditional W-2, but that was finally overcome. Then right before closing, they ran the county records and said they can't do a HELOC on a home I don't personally own, and I would need to do a quit claim deed and put it back in my name to get the loan approved and then can do another quit claim deed to put it back under the LLC that it's currently operating under.

Is that standard practice to have to do this, or am I missing a trick or a different loan type similar to a HELOC?

All the investors just say “tap into your equity” but never actually tell you how to get that equity with the loan process.
Any insights from experience investors would be much appreciated.

Thanks all in advance

-Clay

Nicholas L. · Answer

@Clay Hall

i like your slow and steady response.  HELOC money is EXPENSIVE money.  there are so many posts on BP by people who plan to take out a loan at 8-12% on a HELOC in order to get a return of 0-6% just to "buy more doors."

that's not investing.  somehow HELOCs are viewed as magic.  i think it's because of the tremendous rise in home equity in the past 5 years.

i used a HELOC to (1) help with a down payment on a short term loan, that I then paid back in full when I refinanced; and (2) to consolidate some higher interest debt, which I am now paying back by making extra payments against the principal since HELOCs are generally interest only for the first 5-10 years.  imagine paying 10 years of interest and no principal...  why not just go buy lottery tickets?

congrats on your success so far.

Kerry Baird · Answer

@Clay Hall, I like a HELOC on my primary residence as an emergency fund, and wish I’d had that extra money when I got started, simply as reserves.  We moved into fixer houses to renovate and then moved out and turned the house into a rental.  Once the renovation is done and the house is put back together…that’s a great time to get a HELOC and just leave it open.

Moving a house into an LLC has several unintended consequences, as you have noticed. Financing requirements change a lot.

Borrowing from my primary so I can buy another rental, which is also borrowed money, is a fools’ errand…creating an “alligator” right at purchase and putting my own house at risk.

Clay Hall · Answer

Hi @Nicholas L.

Really means a lot to hear a different perspective from an experience and successful investor so much appreciated for your insights.

That was kind of my thoughts is I got quoted for 8.9% on a HELOC but running the numbers on a long-term rental just doesn’t make sense. buy more doors and let rent and debt pay down and equity do its staying overtime but there’s also a lot of pucker factor if everything doesn’t go according to plan.

I could see this potentially on a short term rental as we see some significantly larger returns, or just to put down capital on a short term loan and then refi as you mentioned.

Have you had any experience or success in a mid-term rental market? Haven’t done it, but it seems to be kind of be a middle ground between returns and risk tolerance.

Thanks again 🙏

Kerry Baird · Answer

@Clay Hall,

It is much easier to get financing on a house that you will be occupying, because of risk to the lender.  This includes HELOCs or fixed second mortgages, which again are easier to get when titled in your own name.

Rental houses in your own name will be harder than an owner occupied house, but you may find a HELOC or fixed rate line at a local community bank, a credit union.

Once you title a house in an LLC, you have to change title to yourself and back again.  Or you have to look for commercial or DSCR mortgages.

This may mean that people on one side of the wall at your local bank (in the residential lending) might have no clue that they have a product on the other side of the wall (in the commercial lending side).

It can be a challenge when we pay off a house to get money back out of a house.

Nathan Gesner · Answer

I've never done it, but it's my understanding that not all lenders offer financing for properties held by an LLC. Consider commercial or portfolio financing from one of the following lenders:

• Portfolio lenders
• Regional banks
• Community banks
• Credit unions
• Non-bank lenders
• Commercial lenders
• Private or hard money lenders

Raymond J. Rodrigues · Answer

@Clay Hall, I’ve looked far and wide for a lender that will do HELOCs for properties that belong to an LLC and I have yet to find one. I too am a lender myself. If you find one, please let us all know who it is! Thank you.

Clay Hall · Answer

Hi @Kerry Baird,

Really appreciate your insights and advice! I had no idea this was the case or I would have pulled out that HELOC prior to doing a QCD on the property and turning it to an LLC.

I’ve totally observed what you mentioned about one side of the house, not knowing what’s happening on the other side when it comes to the commercial first residential side of lending. As a new investor, I really appreciate you taking the time to help me!

Clay Hall · Answer

Hi Nathan,

Thanks for the reply and insight that it might be normal what they are telling me. Since I did work with local credit unions, maybe I’ll try a regional bank or go with a commercial loan as you mentioned.  On the other hand, there’s a part of me that wants to just keep slow and steady without leveraging more debt and buy properties as I can save a 20% down payments. Currently have a little over 100k saved. Much slower than utilizing a HELOC, but I’m not trying to build an empire and just have a passive income source that eventually allows me to spend my time where I find meaningful. The numbers say my ultimate goal is to get about 11 duplexes in the 100-120k per door range in the next few years and then snowball the debt pay down. So, I can keep my high paying job going and I can keep saving for down payments. Slower, but less debt than the heloc route.

Thanks again for the feedback

HELOC needs Quit Claim Deed??

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