Commercial Refi

13 Replies

I am new to REI but am interested in the Buy-Renovate-Rent-Refi approach. I have an LLC and we just closed on our first property last week (cash purchase). From having a short discussion with two different banks, I found out that if an LLC owns a (residential) property I have to go the commercial route to refi. Is this true with all banks?

Is it generally more difficult to refi using when an LLC owns the house vs. an individual?

Any advice on how I can strategically set this up where it would make refinancing my properties easier?

Thanks!

-Nate

Yes that would be a commercial re-fi.   I don't think it's more difficult though. You have more options for commercial re-fi's because you can go to banks or private lenders.  It will be a higher rate than a residential loan. 

Thanks @Rita Bautista

Since the LLC is brand new and doesn't have any credit history or tax returns, do they look at the income/debt and credit the same way they look at a residential loan? Does the rent money get considered?

The lenders will look at the financial capabilities of the LLC's owners and will want them to personally guarantee the loan. Good luck.

Conventional loans are available only to individuals. That's because of Fannie Mae & Freddie Mac rules. If you want an LLC to get a loan it will be commercial, so no 30 year fixed rate loans. And you will still have to give a personal guarantee.

Nathan,

My private lenders look more ate the property value. Some of them do stated income loans. They will ask for tax returns and yes a personal guarantee is necessary early on but you can build you LLC's credit over time. Make sure to have a separate bank account and credit line for your business. Creditera.com gives you your business credit score. 160 is considered good businesses credit.

At^. Not ate. Sorry on I Phone 

Jon 

There are 30 year fixed loans for commercial homes. 

Commercial underwriters are typically concerned with cash flow whereas debt to income is typically the main ratio in retail banking. They will include your income and might include projected rental income depending on the bank's policy. The most common cash flow requirement is 1.20x, meaning if your monthly expenses are $1,000 then your monthly income must be $1,200 (120%) or higher. Keep in mind that they might combine your personal income and expenses with your business (rental) income and expenses to calculate this ratio. If you have a 1.20x debt service coverage ratio without including rental income then you'd probably be in great shape.

@Robert Anderson ,  Are you talking about getting a loan for a new investment property or refinancing an already existing one?

@Nathan Zhivalyuk We treated them essentially the same at the bank that I used to work at. One exception is if you were cashing out on a property, in which case we typically required the person/company to have owned the property for at least 6 months. All of this definitely varies from bank to bank.

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