LLC Financing Question - Personal Credit Maxed

10 Replies

My business partner and I purchased a 3 flat in Chicago for $325k about 3.5 years ago. We are currently getting $4300 in monthly rent - Soon to be $4600. We formed an LLC immediately after purchase. We have been reporting ALL rental income in taxes and should have good records to prove this.

At time of purchase, we FHA'd with only 3.5% down (4.5% IR) as we both lived there in one of the units. Currently we have something like 9% paid down so LTV is no where close to 25%. My understanding is that in order for this property to not count against us it needs to be 25%. Making a big payment to get to 25% would eat up a large chunk of cash we would like to use for the next down payment.

I also own a condo with my wife - and between the two buildings I don't think I have much excess credit to obtain another loan. My partner has some, but I think he would like to buy his own personal residence in the next couple years and would prefer the next place we buy not prohibit him from doing so.

Questions -

- What are my options for obtaining a loan on another multifamily (4 or less units) building?

- Who should I be talking to?

- Advice?

Thanks everyone in advance for your responses - Let me know if you need further details.

@Jon G. - If you bought in Chicago 3.5 years ago you should have sufficient equity to refi - if that is the case you will be able to at least drop PMI

To qualify for a loan they will look at your DTI - This is a pretty decent calculator.

If you want, message me the address and I can run a comp for you and give you ideas of what it will appraise for. I have properties in Albany Park, Portage Park and North Center. I also not a few creative lenders you can speak with

My understanding is that in order for this property to not count against us it needs to be 25%.

I'm not sure what your referring to about it "not counting against you'? When you calculate DTI the rental income is taken into account (but there are varied rules according to how long you have owned the property).


Thànks both of you for the responses.

Andy - What I meant to say was I had read that I needed to have 25% of the rental property paid down in order to count the r entrees towards my income in the DTI. I'm reluctant to make a big extra payment as that would hurt my ROI and set me back buying another building.

Brianna - Thanks for the offer. I sent you the address. Nice hoods! I couldn't afford north center when I was looking. Definitely saw a lot in Albany and Irving park, but I I ended up finding the best deal at the time in Logan square. I'm interested in Avondale and east Humboldt for expansion.

I would definitely be interested in speaking with some creative lenders if there is no conventional option for me.

You could have zero equity or be upside down in a house that's a rental and the rental income still counts. You will use 75% of the rental income for the first two years you hold the property to establish the true cost of the property, after its been on two tax returns it goes to actual income/expense per your return.

One thing I'm confused on, I have heard you have to have two years history owning rentals to count rental income, I have no idea if that is true or not

I'd step outside all that FHA and Conforming QM crap and search for a Stated Income ALT type program that does not require 25% equity to allow your to use the rental income for DTI.

The State Income Alt loan programs are NOT No Doc as borrowers must prove the ability to repay the loan, just they have a lot more flexible guidelines for situations like yours.

@Jon G.

It sounds like you are looking to grow your business in the future. I would develop a relationship with a local bank (or several) so you and your business partner can finance your investments out of your LLC. Establishing solid tax returns with rental income is important along with building equity. However you will have a lot less hoops to jump through when dealing with a local bank. See if you currently have enough equity to refinance your first property with a local lender.

I'm in Chicago all of the time because my fiancé is finishing law school at the University of Chicago and saw a bank advertisement that made me smile a few weeks ago. A local bank was advertising 5+ unit multi-family loans at 4.25% for 5 years amortized over 25 years. Local banks are back and they want to originate loans on multis. Good luck!

@Jon G. Not sure, but I think you may be misreading/misremembering what you read. It IS true that most lenders will only count 75% of your rental income as "income" for the purposes of your next loan (that's their way of figuring in vacancies, etc). That might be where you got the 75%? I'm pretty sure equity doesn't come into it, other than the obvious effect that it will have on your balance sheet/financial statement.

And, it IS true that most lenders require two years landlording before they count that rental income, but you are already over that hurdle.

Without 25% down I don't see how you will qualify for non owner occupied traditional financing for an investment property

They'll want to see your personal income taxes as well.

The only reason I've seen equity come into play is for how much is required in reserves for that property. Some lenders will allow a smaller reserve amount if you have an appraisal done to show you have equity in the current rental.

@Jon G. We have a lender in Chicago that handles a lot of our business for our clients for our turn key properties which include single & multifamily (residential & commercial)

If you would like his info, please feel free to reach out.

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