Hi! I have a rental house that is owned by an LLC. I was told by one bank that I would have to get a commercial loan because the house is owned by an entity, and not a person. How do commercial mortgage loans compare generally to personal mortgage loans? The bank rep said that commercial loans are typically due in full after 5 years? Can anyone verify this? That would be so much tougher than the typical 15 or 30-year loan!
I have a few commercial loans and they're 20 year amortization with the interest rate resetting every 5 years. So not due in 5 years. Generally in the 5 - 5.5% rate range at the moment.
Hope that helps,
That is why we got rid of our LLC before buying our first rental. We would have had to sign personally for the loan, anyway; the terms were not nearly as good; fees were much higher; and we believe rates will be much higher in 5-10 years, so we want to lock in 30-year rate for our properties. We have an umbrella policy and also require a renter's liability policy as part of our lease. Realize there is still risk involved, but there would be in an LLC as well.
My experience with traditional banks over the years is that their commercial loans typically do not follow the traditional FNMA lending guidelines. Instead, they typically do have a balloon payoff in the 5 year range. You might consider approaching a local credit union. Many of them are allowed to make loans to an LLC. Their rates and the term length of their loans are typically better than from a traditional bank.
Generally, you can expect 15-20 year amortization with a 3-5 year reset or balloon for commercial mortgages. Your interest rate will be a point or two higher than consumer rates based on your personal credit and you can expect to sign a personal guarantee. The balloon is technically "due in full" like your lender told you, but it usually is like a reset and works like an adjustable rate loan. That's how banks take some of the interest rate risk out of the loan. They don't get stuck with loans at today's low rates for 15 or 20 years.
Those are the trade offs for obtaining loans on properties that don't meet normal lending requirements. You also have an unlimited number of this type of commercial loans - none of that 10 loan limit stuff. When you hear the term "portfolio lender," it refers to a lender (bank) who holds a portfolio of loans and doesn't resell their mortgages. Being able to sell loans comes with regulated requirements and the smaller banks have lots more flexibility in their lending when they aren't reselling their loans.
You have to shop around or seek a referral from other local investors for lenders that offer favorable terms for investors. Whether or not you NEED to do business in an LLC or not is a matter of asset protection and tax planning that you should discuss with someone with intimate knowledge of your financial situation like your attorney, estate and or tax advisors.
what we are currently doing is not getting a loan through the LLC in particular, but getting a personal loan, then deed the property to trusts.. then the trusts have a % ownership of the LLC (I work with a partner). All the income from the property goes into the income for the LLC. Of course consult a lawyer before doing any of this.
It's another way to move around getting the loan through the LLC and also a bit more complicated.
I do believe commercial lenders will loan for more than 5 years. Google "portfolio lenders" in your area and ask them about it.
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