Cash flow bottleneck

10 Replies

Here is the situation:

I have cash tied up in 4 properties, 2 of which are stabilized with paying tenants and 2 are undergoing rehab (will be complete within a month). My lenders have suspended operations and I've called dozens more, both on the conventional and commercial side. On the conventional side, they won't fund me because the properties are under a LLC and would require I quid claim deed it to my personal name and wait 6 months...no thanks. On the commercial side, can't get anything near a long term financing situation. What are you guys doing out there to pull your capital out?

Originally posted by @Navid A. :

Here is the situation:

I have cash tied up in 4 properties, 2 of which are stabilized with paying tenants and 2 are undergoing rehab (will be complete within a month). My lenders have suspended operations and I've called dozens more, both on the conventional and commercial side. On the conventional side, they won't fund me because the properties are under a LLC and would require I quid claim deed it to my personal name and wait 6 months...no thanks. On the commercial side, can't get anything near a long term financing situation. What are you guys doing out there to pull your capital out?

Are the current loans in the LLC or in your personal name? If the loan is in your personal name, where they purchased in your personal name? Generally speaking commercial loans will have a shorter fixed term, like 5 years fixed based on 20 year amortization. One option is contact smaller local banks who will hold the loans in house. They may give you a longer fixed term without having to adhere to conventional underwriting standards.

**to pull your capital out in terms of a cash out refi? This bottleneck is causing a halt in my operations.

@Joe Splitrock

These 4 properties are completely held with cash. No loans were used for acquisition or rehab. All cash positions. Tried the small banks as well, no love there either. Commercial side is offering 5 year terms over a 20 yr amortization for a 70% cash out. Im not too familiar with the commercial side of things, but I need a solution to keep driving my business. I don't want to wait around in hopes that my portfolio lenders will reopen soon. Truth is, no one knows how long the wait can be.

Originally posted by @Navid A. :

@Joe Splitrock

These 4 properties are completely held with cash. No loans were used for acquisition or rehab. All cash positions. Tried the small banks as well, no love there either. Commercial side is offering 5 year terms over a 20 yr amortization for a 70% cash out. Im not too familiar with the commercial side of things, but I need a solution to keep driving my business. I don't want to wait around in hopes that my portfolio lenders will reopen soon. Truth is, no one knows how long the wait can be.

What you are seeing is pretty typical. I don't think the commercial option is bad. Just refinance again in 5 years and pull more cash out or move them to a portfolio option at that time. The nice thing about taking the loans in your LLC is you can build credit for the LLC.

@Joe Splitrock

The issue is, or maybe it isn't an issue, these banks also want a personal guarantee on the loan as well which is something I've been able to avoid for the most part. Otherwise, the rate they're offering is 4.75% for a 5 year term with 20 years amortization.

Originally posted by @Navid A. :

@Joe Splitrock

The issue is, or maybe it isn't an issue, these banks also want a personal guarantee on the loan as well which is something I've been able to avoid for the most part. Otherwise, the rate they're offering is 4.75% for a 5 year term with 20 years amortization.

They don't need your personal guarantee, they want it. I don't blame you for pushing back on that. You should be able to negotiate that. They have collateral with 30% equity securing the loan and 4.75% isn't exactly a low rate. I may say ok to the personal guarantee, but ask for a better rate. I am refinancing conventional at 3.6% right now fixed for 30 years on investment properties (SFH).

@Joe Splitrock

I completely agree, everyone is acting risk adverse right now. I'd argue that we as investors are the ones really taking the risk, the banks are sitting on 30% equity! Housing market is still strong here, leased a property within 24 hours of listing. The rate is pretty low to me but I'm used to rates of 6.5-7% using portfolio lenders. I'm assuming you're using conventional lenders?

@Navid A. Rates will be a function of loan size sometimes. Portfolio lenders I’ve connected with are in the 3.5-4.5% range. However, most of the ones in the lower range have non-negotiable positions on personal guarantee.

@Allan C.

Thanks for the reply. Do your lenders require a personal guarantee and do they lend to entities? Also, do they consider DTI and personal finances or is it solely based on the property's debt service coverage ratio (DSCR)? Just want to make sure we are comparing the same product. The lenders I've used disregard DTI and personal income verification. They base underwriting on credit score, DSCR, and property value. If we are comparing the same product, can you please message me the name of your lenders?? I'd be happy to refer you to a list of my lenders that helped me build my portfolio as well.

For the assets held in entities the lender requested personal guarantees for entity members. Yes this may seem excessive, but given current environment it provides them a layer of security on their loan.

Lender underwriting factors property performance (debt cover, LTV, etc.) as well as personal finances. While PFS includes income, it's more about net worth rather than annual income - i.e. NW > loan value

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