Investor · Midland, MI · Member since 2015 · 37 posts · 13 votes
Greetings Real Estate enthusiasts! My questions is in regards to financing deals using equity loans, cash-out refi or equity line of credit. If I decide to go full time with RE investing after I've acquiring 20+ cash flowing properties, will banks have trouble funding me deals because I don't have a full time job? Or will my previous history bypass that? I'd love to get your opinion on this.
Lender · Western Springs, IL · Member since 2015 · 472 posts · 245 votes
9y
You would be an owner of the LLC. If you are the only one, 100% owner. As owner you have the ability to claim the net income from the LLC on your tax returns or to take distributions on your returns. Either way, you personally will go qualify for any future loans. You have to have them in your name. Once you close, you can have an attorney move them into an LLC. You will not be able to get residential financing on properties if you are trying to close the loan in LLC. They will force you to get a commercial/business loan.
Lender · Western Springs, IL · Member since 2015 · 472 posts · 245 votes
9y
Samuel - by then hopefully you will have an LLC set up. The earlier, the better. Banks will look for a two year history of income (whether that be rental income on the Schedule E or income that flows from an LLC). At the point that you have two years or longer, the banks will take whatever income generated by your LLC and use that. Caution - there is going to be an equation used in order to determine the proper income amount for underwriting. Even after you have established this, there are ways you can make sure your income will be used properly. Often, banks will only give you credit for income that flows through from a distribution on a K-1. However, they can give you credit for simply net income on a K-1, provided your company meets a solvency requirement. There is quite a lot to it and something you should have completely vetted out before you quit your job while trying to acquire more properties.
Lender · Western Springs, IL · Member since 2015 · 472 posts · 245 votes
9y
You would be an owner of the LLC. If you are the only one, 100% owner. As owner you have the ability to claim the net income from the LLC on your tax returns or to take distributions on your returns. Either way, you personally will go qualify for any future loans. You have to have them in your name. Once you close, you can have an attorney move them into an LLC. You will not be able to get residential financing on properties if you are trying to close the loan in LLC. They will force you to get a commercial/business loan.
Investor · Midland, MI · Member since 2015 · 37 posts · 13 votes
9y
So just to clarify. I will be able to get an equity loan as an LLC but it will be financed as a business loan as opposed though residential financing. Is that correct?
Lender · Western Springs, IL · Member since 2015 · 472 posts · 245 votes
9y
I wouldn't say that. You could get a commercial loan. From my experience, they are often not a line of credit. More often than not they are multi-year balloon loans that you need to redo every few years. Typically they work more like an ARM.
Residential mortgages - first mortgage purchase, cash out refinance, HELOC, etc, are used most often for a good reason, they are typically the most stable and can be the cheapest route. However, Commercial loans have an advantage of getting around some of the rules/restrictions that Fannie/Freddie/FHA/VA/Jumbo pose. But they do that at a the expense of stability and usually cost.
Lender · Western Springs, IL · Member since 2015 · 472 posts · 245 votes
9y
Not typically but you could. The best, lowest cost mortgage options would allow you to use your LLC to qualify, but the loan needs to go under your name. Not the LLC. If you move title into the LLC after, that is up to you.
There are some lenders that will lend to LLCs and for that matter, may lend as well without you having income right now. I can tell you about one if you PM me. But the rates are much higher than what you would find normally.
Investor · Midland, MI · Member since 2015 · 37 posts · 13 votes
9y
Hard Money lender right? I'm trying to buy a house cash first so I'll stay away from that now. But okay, I think I get it. I should get the properties through my name and then afterwards move them to the LLC. That way I'll have the advantages of residential mortgage.