Real Estate Agent · West Hartford, CT · Member since 2016 · 449 posts · 476 votes
Hi all,
I am currently under contract on a house that will be my first BRRRR. I am currently shopping around for the Refi part of the process. I am trying to decide whether or not to refi into a conventional loan or commercial.
Background story: Currently own 1 duplex in my personal name (FHA loan @3.65% 30 year fixed). I also own another duplex- Commercial loan in the name of my LLC- 20 year amortization, 5/5 arm @5.75%.
I am under contract to purchase the property in my LLC with hard money lender. After shopping around a bit I could refi into a commercial loan with the LLC at 20 year amortization, 5/5 arm @5.75% 1 POINT, NO SEASONING.
Or I could refi into personal name for a 10/10ARM @3.875% NO POINTS, 6 Month seasoning.
Question: Would you take the lower cost route save about 1%, have higher cash flow but it be on your credit ect. I have heard you can get up to 6-8 loans in your personal name.... not sure if it is advantageous or not to do that. Or would you just keep purchasing in the name of the LLC for liability reasons ect. Thanks for all the input.
Attorney · Austin, TX · Member since 2014 · 1k+ posts · 932 votes
7y
There are pros and cons the both. From a liability standpoint you would want the property nested in an LLC. You can still accomplish liability protection while purchasing in your personal name through the use of a Land Trust, though. This article goal into a bit more detail on this. Essentially, you would purchase the propert in your own name with the preferred rate, then transfer it into a Land Trust (this does not trigger the Due on Sale Clause thanks to the St Germain Act,) then assign the LLC as the beneficiary of the Trust. You would want an experienced attorney to set up the structure for you, but it essentially it gives you the preferred rate and liability protection via the LLC.
This isn't legal advice, just my opinion as a real estate investor.
Investor · Vancouver, WA · Member since 2013 · 3k+ posts · 4k+ votes
7y
Most lenders will require you to put the property in your personal name if you want a conventional loan (better terms) instead of a commercial loan. Even having your properties in an LLC won't provide liability protection if facing a lawsuit led by a terrific attorney, as these shields can be pierced. Best way to protect your interests is with good management techniques and great insurance. I'd go with putting the properties in your own name and getting the best terms you can for financing. If the property is later paid off and you don't plan to refinance it, then put it into the name of the LLC if you wish. If you scale up and want to put all your properties into the name of the LLC, then be prepared to go commercial. Each time you change the property ownership from your personal name to the LLC, or vice versa, be prepared to pay a recording fee with the title company.
It's really a math question. Which one gives you the lowest barrier to entry and the greatest cash flow?
Always (we don't do conventional loans and still tell all of our clients this) exhaust your conventional financing avenues first. Don't worry about the LLC until you have acquired 10 or so properties. Get an umbrella liability policy that will cover up to 2M and roll on.
You can get 4 conventional financed properties until the rules tighten a bit and then an additional 6 more. If you have a wife and she qualifies, do 10 for yourself and then 10 for her.