Hold first properties as individual or quitclaim to LLC

5 Replies

It seems that there is currently more financing available to LLC's than there are to individual investors at the moment. These were cash deals and I currently own both outright and have not refinanced yet.

Should I quitclaim my 2 properties to my LLC and use that entry level resume of 2 deals to access more financing or should I continue investing as an individual in order to obtain lower rates? At the moment it seems like paying the slightly higher rate the LLC would get on a loan may be worth it as It would open doors to more capital that seems to prefer working with LLC's over individuals.

Or...am I operating with bad info and there is just as much financing for individuals and I'm just looking in the wrong places. (i.e. seems like most hard money lenders want at least 2 deals under your belt before they will give you a solid rate.)

The more nuanced the answer the better. Thanks

Hmm you post an inserting question. It's been my experience lenders generally don't like to loan to LLC's unless you are doing a commercial loan. I have always borrowed in my name and then QC to my LLC. It'll be interesting to see what others have to say about this.

@Benjamin Giles

Yes, that is the Due on Sale Clause. Basically, if there is a change in ownership the holder of the Note can call in the loan. Apparently, if Fannie Mae is the Note holder, they won't call it in if the ownership is the effectively the same, i.e. you transfer Title from yourself ot a LLC you wholly own. Honestly, that is sort of the least your problems when you do something like that. Here is some reading material:

https://www.biggerpockets.com/...

https://www.biggerpockets.com/...

https://www.biggerpockets.com/...

https://www.biggerpockets.com/...

Basically, in my layman's opinion your risk the corporate veil of your LLC, which pretty defeats the purpose of having the LLC for the limited liability. Meanwhile, the mortgage is given under your name which screws up both co-mingling and alter-ego. Your mortgage payments should be coming from your personal account and not your LLC's account. Meanwhile, since the LLC didn't give the mortgage, its not really under the umbrella of the LLC.

But, to answer your question this doesn't seem to be your issue since you own your two properties free and clear.  If not, you just refinance with a commercial loan...  Anyway, it sounds like your perception is with regards to the investments that you are doing.  Conforming residential loans that "everybody else" wants is only good with "decent" properties and generally require owner-occupation.  Only the 'investment' conventional loan is a conforming loan that allows for non-owner-occupied.

If you are doing hard money, then it looks like you have some pretty poor condition properties that you are looking to fix up. Yup, most hard money lenders will want the property, and only that property, in a LLC more so for their protection. I think that is why you perceive commercial, or basically not conforming residential loans, to be more available to you. Or, perhaps you just have low reportable income which is common.

So, it really depends on what you are doing and your investment strategy. There isn't just "one" loan product. There are many which is why some advise using a mortgage broker or having a really good lender on your team that can originate the correct loan product for you. There isn't enough info here for me to really comment further. If you want, I'd be happy to chat, just send me a direct message.

Good luck.

Originally posted by @Benjamin Giles :

@Sarah Brown and @Cameron Tope, my understanding from something they mentioned on the Rookie podcast was that this was not cool with lenders. They may call the note if the property is transferred to an LLC with whom they don't have a lending agreement with.

Hey Benjamin,

Yes, you're correct. Some banks don't care while others may want to trigger the due on sale clause. 

Have a chat with your loan officer to see where they stand. If a lender ever gives you a hard time then you can always transfer the deed back into your name.

Hope that helps!

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