I have properties that i am fixing up that have no liens on them, so I figured I would go to the bank and use them as collateral for $300K in loans for some renovation.
- Dunlap - an unimproved but habitable investment property that should appraise as is at $200K+.
- Grillo is a nice piece of land with an uninhabitable building. I am hoping to borrow against the value of the land, which is probably $120K
The trick of course, is that I only hold them 4-6 months, so high closing costs on the loan can make borrowing too expensive. I shopped around a lot for low closing costs.
The Bank of Oklahoma (which manifests in NM as the Bank of Albuquerque) was willing to lend me money using these houses as collateral, assuming they appraise as I predict. BofO offered me 7%, no closing costs and a 75% LTV.
Or that was the deal until the understood that the banks are owned my my LLC and not personally. At which point they found they need to treat this as a commercial loan and I find myself starting from zero in an entirely different department. I am not sure where things are headed.
I can deed the properties back to myself. The main issue becomes liability. Flipping is risky and I try to isolate my business activity and assets in an LLC.
I am interested in hearing from anyone who has been down this path and how it worked out.
Updated almost 4 years ago
Correction: Or that was the deal until the banks understood that properties are owned by my LLC and not by me personally.
This is a very good question and I too would like to hear people's experiences.
@Katharine Chartrand Most lenders are very hesitant to lend against vacant land. I know an amazing, investment friendly lender in Albuquerque that can help you with just about anything you may need. Send me a message if you would like his contact information.
I have had some lenders say they would only loan to individuals.some actually told me to take the property out of the LLC and then put it back in after the long, although I never have done that. Other than those banks though, I've had pretty good luck, mostly with local banks.
This is a very common question...
1. Conforming Fannie/Freddie notes are residential only, which means that the owner of record has to be a person - a corporate entity simply does not qualify by design.
2. If you think that you are going to deed them to yourself, get the loan, and deed back to the LLC, you must know that doing so triggers the Acceleration and Due on Sale Clauses. Will they check? Who knows, but they are within their rights to call the thing due in full. You'd be advised to ask for written consent...
3. Portfolio lender will be the way to go, however, amortization and interest rate become an issue.
You have to make a decision :) Good Luck!
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