Refinancing when property is owned by an LLC

14 Replies

Are there any issues that I should be aware of if I purchase a property with a full-cash purchase into an LLC, with the aim that I will refinance it later? Will the mortgage issuer for a single family property lend when an LLC is the owner, or are there any other issues that I should be aware of?

david

your llc should have its own credibility and d&b number to make transactions with

if you have any questions save yourself some money and get your local paralegal to go over some laws in your state and talk to your CPA to get you straightened out on the best way to leverage

enjoy

As far as I know, FANNIE and FREDDIE will only buy/guarantee 30 yr fixed rate awesome residential loans for live people that breathe air.  Not an entity.  

If they are out, you will be stuck with portfolio lenders or commercial.  Shorter terms, adjustable rates and the like.   In the name of asset protection, sometimes ya get stuck with crappy asset financing.  I only hold commercial and 5+ unit apt assets inside LLCs, mainly for this reason.

Congrats on buying it for cash @David Parnell .  Did you save it up or you use a private lender or something?  Thanks!

Thanks Steve - I had the cash and a cash purchase (and expedited settlement) managed to get me a good price. 

How do most investors manage this? From what I hear, most investors use LLCs; does this mean that they're all using non-traditional financing? 

Yep. The dark side of over-sophisticating the ownership of little houses.

I wouldn't say most do it. A lawyer will talk about it on a podcast and get new people worked up, but the lawyer isn't even an investor most times. LOL

A lot of us that have been doing this a while and own a bunch of RE know the pitfalls of financing and insuring little  houses inside commercial business entities. It doesn't mix and was never intended to. 

@David Parnell As long you truly bought with cash (i.e. no lien against the property) and you are not approaching the 6 month mark, you can do a Delay Refi into a Fannie 30 yr fixed loan. The loan amount will be the lower of the allowed LTV or the purchase price.

When refinancing under the name of the LLC, it just means the terms will be worse. Typically you'll get 75-80% LTV at best, 20-year AMM, and as of right now, probably 6-ish% interest (plus a 5 or 7 year balloon). This just means the monthly payment will be higher than if you owned as an individual. It will be slightly harder to find a bank willing to lend but I wouldn't say difficult (I've got 18 properties under an LLC all financed and some re-financed by a bank). This is because any loans to an LLC are "in-house" or "business" loans not backed by Fannie/Freddie.

I wouldn't worry about it unless your expectations are greater than what I said above. Also, regardless of what you hear on BP, you WILL have to personally guarantee the loans. All members of the LLC will be required to do this. Can you get a loan on the LLC without personally guaranteeing it? It's possible but extremely rare and the terms would be way worse than above. All the members of our LLC have had to personally guarantee. I don't see that changing anytime soon. Maybe at 100+ units, it starts to become a possibility (depending on the deal). If you don't have many properties, don't look for a bank where you won't have to personally guarantee the loan. Also, smaller banks ar better for LLC loans than bigger ones. Look for local (or state-wide) banks. Stay away from regional or national banks.

@David Parnell If you want to use an LLC you are going to be using commercial real estate financing. These are a different type of lender with different rules. Most investors who are growing will switch to commercial financing at some point.

You'll need to work with a portfolio lender that keeps loans in house. Larger lenders (Wells, BofA, etc) will require the house and loan be in your personal name.

That's my experience

I was also thinking of doing a cash out refinance. One of my properties is in an llc. I called round point mortgage just to see what they would do more out of curiosity because they keep sending me emails about refinancing. The person I spoke to said they would do a cash out refinance 75% ltv. The said that I would need to do a deed back into my personal name they would then do the cash out refinance and then I could move back into the llc. Sounds good but it makes me nervous to take out of the llc put in my personal name and then back into the llc for liability reasons. Does anyone have any experience with doing what I described above? Thanks-Cody

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