Refiance or Commercial Line of Credit on Investment Property Need opinions

10 Replies

Hey gang,

I would like to run a scenario past you

Here is the deal: I own a 4 unit building on which I owe $75,000. I believe it is worth about $180,000--maybe more, maybe less. I am trying to decide whether or not to

  1. Apply for a commercial line of credit or
  2. Refinance the property

I would like the cash to make down payments for other buildings. Here is what I’m pondering:

  1. With the commercial line of credit
    • The interest rate is variable over the 3 year term
    • The interest rate would be 4.75% (prime + 1.5)
    • The rate could go up when interest rates start to rise
    • It would cost me about $1500.00 to do it
    • I don't have to take it out of the LLC because its commercial
    • It is with the bank that did with the original mortgage
    • It would not show up on our personal credit report (unless there is a problem)
  • With the refinance
    • It would cost me about $3000.00 to do it
    • I would have to quitclaim it out of the LLC for a time (2-4 weeks while the county files it) and then back into the LLC (another 2-4 weeks)
    • We would get 70% LTV...possibly 65%
    • My monthly payment would go up
  • The interest rate is fixed
  • My rate would be 3.000% (15 year term)
  • Its with a new bank that has no problem being second

I am not sure what would make the most sense. I would like you opinions.

Thanks!


Something new I learned: PenFed credit union will issue lines of credit on investment properties. The property must be in your name, however, and not that of an LLC or other business.

@Alexis Zion

 - I would go for the refi.  The lower rate and fixed terms are more attractive.  

Alexis,

  I'm certain that the bank will require you to sign a personal guarantee on the line of credit.  So even though it doesn't show up on your credit report, you are still personally responsible for that line of credit for your business.  It is nice to have that working capital but be aware of the personal guarantee. 

2nd the regular refi; you can have the title company the bank works with handle the deeds, and it can be all done within the regular amount of time it takes to refinance. The fixed rate is more important if you're looking to solidify your cash flow and build equity.

I would choose the refi option.

I totally agree " solidify your cash flow and build equity "

Make sure you account for quit claim fees and that 

the DNS for city of Milwaukee are typically weeks to 

month behind on handling paperwork.

If need : 

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Land Title / Closing our excellent resource for quit claim issues or concerns.

Hey Rita

Why would I have to worry about the personal Guarantee...have you heard any horror stories?

HEy Jenkins 

When I put the property "in" the LLC the fee were $120 ...are they any different when I take the property out of the LLC?

To All

How do I protect myself when I take the property out of LLC for the few months that it will take to get everything taken care of? I feel like I will be vulnerable when the property is in my name?

regarding fees question : I would suggest contacting a title company

Make sure every communication and document you create and send is in the name of the llc. You still sign the lease in the name of the llc. you should only have it out of the llc for a month if you let the lender handle all the title work. 

@Alexis Zion

Several questions to ask yourself:

1) How many assets do I have to protect?

2) If less than $1,000,000 I would consider getting an umbrella policy attached to your primary residence. This is actually a very cost effective solution. (I am pretty sure you have to keep in your name.)

3) Why are you putting properties in a LLC? The only reason I have learned so far is to protect your assets. Unless you have several million in assets, I would strongly consider the umbrella. This gets more complicated as you add properties, but for MFDs (1-4 units), that is the approach we are using until we max out the number our umbrella allows! All commercial properties will be in LLCs, and have separate liability policies. There are a fair amount of expenses with operating a LLC. Also, if you are not meticulously about the paperwork, a good attorney can pierce your vale, and you have wasted all that money in setting them up.

These are just my observations, and I am not an attorney :-). Best of Luck!

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