Should I transfer rentals from LLC to personal name for loan?

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Should I transfer rentals from LLC to personal name for loan?

Matthew B.
Investor · Howey in the Hills, FL · Member since 2013 · 376 posts · 114 votes

I own several single family homes and a couple duplexes that are held in an LLC owned by myself and a partner. They're all rental properties.

I've been trying for years to do the "BRRRR strategy" as it's now called - since even before the term was coined. I've tried almost 30 different lenders, the majority being portfolio lenders, and none have been able to help me. The fact that the properties are held in an LLC automatically sends me to the commercial loan department and their less than desirable loan terms.

I thought my search was finally over when I found Trustco Bank. They offered a 10-year mortgage amortized over 20 years - the best terms yet! But after I submitted yet another loan application, I found out they will only lend based on what we originally paid for the properties back during the recession, not the current appraised value. Even after several years of seasoning! Obviously, that's not going to work.

I'm really getting tired of this. I'm wondering if my partner and I should just split up the assets into our personal names and see if we can get investment loans that way. It seems like other investors are easily getting loan after loan on properties they own personally. Is that the way to go? Any advice would be appreciated.

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Sean Andersen
Peoria, AZ · Member since 2017 · 9 posts · 7 votes
9y

If you are looking at big national bank chains (Wells Fargo, BOA, etc...) they are not going to work with you. You need to go to local community, in-state, or tri-state banks to work with you.

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  • Allen Chaney
    Investor · Tuscumbia, AL · Member since 2017 · 40 posts · 16 votes
    9y

    The issue I've had is that as soon as the lender finds out that it's rental property, I get sent to commercial department even though it's not in an LLC. I have no mortgages at all and I can't get any lenders to refinance the properties I have because they're rentals. I just have to keep looking for that one lender that fits my needs. I'd recommend asking if they can do residential refi or heloc on rental property. Once you find someone that will, then decide if transferring out of the LLC is necessary. Colonial finance and B2R have loan packages to leverage 5+ properties, but the terms aren't any better than commercial lending. BRRRR was my intended strategy, but thus far I've been unable to do anything but pay cash for my buy and holds and use hard money for flips.

    0Reply
  • Matthew B.
    OP
    Investor · Howey in the Hills, FL · Member since 2013 · 376 posts · 114 votes
    9y
    Allen Chaney Same here. BRRRR has proved to be more of a myth than a reality. I've tried companies like B2R but you're right, the terms suck. Trustco actually told me that if our properties were vacation homes they would have no problem lending us money. How does that make any sense? They'd rather loan on a property that makes zero money instead of a cash flowing rental. It's absurd. Then there's the issue that if I do decide to transfer the properties to my personal name, I'll have to wait another 12-18 months for them to season, because the idiot lenders consider that a sale - even though we've owned the properties for years in the LLC! I'm going through a similar issue right now with my primary residence and it's enough to make you want to beat your head against a wall. Who are these investors doing BRRRR and where are they finding these lenders? I keep seeing these "success stories" and I just shake my head...
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  • Allen Chaney
    Investor · Tuscumbia, AL · Member since 2017 · 40 posts · 16 votes
    9y

    I found one small bank that was willing to do HELOCs on rental property, but they want my credit in better condition than I can get it in the next 6 months, or they want to see 2 years of rental income (I got my first property in February of this year). One credit union said they were going to be able to do it, but never ran my credit and started refusing my calls. I have a duplex that is owner financed atm at high rates, I'm going to try to get a owner occupied loan and move into it for a little while and take the extra $400/month I save from paying rent somewhere else to pay down some personal debt.

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  • Sean Andersen
    Peoria, AZ · Member since 2017 · 9 posts · 7 votes
    9y

    If you are looking at big national bank chains (Wells Fargo, BOA, etc...) they are not going to work with you. You need to go to local community, in-state, or tri-state banks to work with you.

    2Reply
  • Matthew B.
    OP
    Investor · Howey in the Hills, FL · Member since 2013 · 376 posts · 114 votes
    9y
    Sean Andersen yes, and I've been to almost 30 different small portfolio lenders with no luck. Community banks, small credit unions, etc. there's always an issue. The worst is when they say they can do it no problem, and then I find out after submitting the loan app.
    3Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    9y

    Take the easy route. Dump the LLC and simply make sure your properties are adequately insured. Keep your equity in your properties at a minimum and you will have the same protection you think you have with a LLC.

    2Reply
  • Matthew B.
    OP
    Investor · Howey in the Hills, FL · Member since 2013 · 376 posts · 114 votes
    9y
    Originally posted by @Allen Chaney:

    I found one small bank that was willing to do HELOCs on rental property...

    We were able to get a credit union to give us a small business line of credit but the LTV is only like 15% and we have to pay to renew it every year.

    1Reply
  • Matthew B.
    OP
    Investor · Howey in the Hills, FL · Member since 2013 · 376 posts · 114 votes
    9y
    Originally posted by @Thomas S.:

    Take the easy route. Dump the LLC and simply make sure your properties are adequately insured. Keep your equity in your properties at a minimum and you will have the same protection you think you have with a LLC.

    The LLC was only to keep the partnership separate and organized, but the ability to do a cash-out refi outweighs the benefits of the LLC for sure.

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  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    9y

    "The LLC was only to keep the partnership separate"

    In that case absolutely get rid of the LLC. Most have a LLC for the psychological sense of protection they think it provides. In your case a simple accounting process serves the same purpose.

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  • Shiloh LundahlPro Member
    Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
    9y

    @Matthew B. An avenue that I have used twice so far is to get a business line of credit and to use the equity in some of our rentals as collateral for the loan with 2 local banks.

    I would keep them in an LLC though.

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  • Matthew B.
    OP
    Investor · Howey in the Hills, FL · Member since 2013 · 376 posts · 114 votes
    9y
    Originally posted by @Shiloh Lundahl:

    @Matthew B. An avenue that I have used twice so far is to get a business line of credit and to use the equity in some of our rentals as collateral for the loan with 2 local banks.

    I would keep them in an LLC though.

    Right - we've done the same. However, the BLOC is small compared to the collateral. The LTV ends up being something like 15%. And the renewal process is a PITA every year. Were you able to do better? We're looking for a more permanent solution to get more of our money out.

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  • Shiloh LundahlPro Member
    Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
    9y

    @Matthew B. Yes. Bank took some of the equity but we have our personal residence and equity that we had in a commercial building and they were able to give us up to 80% of the equity minus the loans that were already on the properties. So they opened up $90,000 business line of credit at around 5.5%. We were also able to use up to 60% of the equity we have in 3 duplexes and 1 SFR we have in Indianapolis that we owned free and clear to get business line of credit for $110,000 at around 5%.

    480-206-1209Podcast Guest on Show #287
    1Reply
  • Matthew B.
    OP
    Investor · Howey in the Hills, FL · Member since 2013 · 376 posts · 114 votes
    9y
    Originally posted by @Shiloh Lundahl:

    @Matthew B. Yes. Bank took some of the equity but we have our personal residence and equity that we had in a commercial building and they were able to give us up to 80% of the equity minus the loans that were already on the properties. So they opened up $90,000 business line of credit at around 5.5%. We were also able to use up to 60% of the equity we have in 3 duplexes and 1 SFR we have in Indianapolis that we owned free and clear to get business line of credit for $110,000 at around 5%.

     Sounds like a good deal! We haven't been able to find anyone who is willing to offer anything close to that. We've been trying for years.

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  • Shiloh LundahlPro Member
    Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
    9y

    @Matthew B. Have  you reached out to specific people in your area that have gotten these kinds of loans? I have connected with a lot of members of BiggerPockets and other investors that have helped me find investor friendly banks.  Then, when I go into the bank, I ask for the specific person that someone referred me to and I let that person know that I was referred to them. I usually get better service that way. 

    480-206-1209Podcast Guest on Show #287
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  • William Meisel
    Oshkosh, WI · Member since 2017 · 6 posts · 0 votes
    9y
    Matt. You need to know how many financed properties and when you quit claim them back is there a waiting time on how long need to be in your name these are the Fannie Mae regs.
    0Reply
  • Matthew B.
    OP
    Investor · Howey in the Hills, FL · Member since 2013 · 376 posts · 114 votes
    9y
    Originally posted by @Shiloh Lundahl:

    @Matthew B. Have  you reached out to specific people in your area that have gotten these kinds of loans? I have connected with a lot of members of BiggerPockets and other investors that have helped me find investor friendly banks.  Then, when I go into the bank, I ask for the specific person that someone referred me to and I let that person know that I was referred to them. I usually get better service that way. 

     The other investors I know personally in my area are either A) super rich and don't need loans or B) trying to get a loan like me. I know a couple guys who have gotten lines of credit but that's about it.

    Weird, because you would think Florida would be a hub for this stuff. Yet, every time I call a bank I have to explain to them how a rental property works.

    2Reply
  • Matthew B.
    OP
    Investor · Howey in the Hills, FL · Member since 2013 · 376 posts · 114 votes
    9y
    Originally posted by @William Meisel:

    Matt. You need to know how many financed properties and when you quit claim them back is there a waiting time on how long need to be in your name these are the Fannie Mae regs.

    Yes, that's also an issue. Even though we've owned the properties for years in the LLC, we'll have to wait at least 6 months after transferring the ownership to us personally to comply with gov't regs. Could be longer if the lender has their own overlays. The whole thing is absurd and absolutely infuriating.

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  • William Meisel
    Oshkosh, WI · Member since 2017 · 6 posts · 0 votes
    9y
    Matt. I am licensed in Florida if you need help
    0Reply
  • Olatunbosun Idowu
    Real Estate Agent · Alimosho , Lagos · Member since 2016 · 22 posts · 17 votes
    9y

    Hi Matthew, 

    Members have given you advice and suggestions on how to go about the problem but what I don't understand is that is getting loan for the rental property the problem or having the LLC transfered to your personal name. I am sure you know the reason for holding your rental property in a limited liability entity in the first place before now if am not wrong for proper asset protection from liability of being a property owner such as attacks from judgment claimers, creditors claim, litigations and tenants claims on your personal asset which can immediately turn your entire asset into liability if there is a lawsuit.

    I also want to believe that you know the consequences of not protecting your asset properly, some advice you to insure you rental property and do the transfer of title from LLC to your name but anything short of a comprehensive insurance package is not enough for a rental property with this it can cover for additional increase in construction cost in case of the unexpected or natural disaster.

    It is easier to do 1031 exchange with your investment property and defer tax and still have adequate protection of your rental property in LLC than in personal name. I will suggest you face and resolve the problem of getting loan with the LLC entity and not think or have the impression that if title is in your name will quiken or speed up the rate at which you get loan. I also want to say that not getting loan is not because lenders are afraid of the protection LLC offers or they think you want to hide their fund under LLC. If you ask from the right people am sure you will definitely get loan for that rental property. Keep up the search

    2Reply
  • Kurt McDowell
    Investor · Saint Louis, MO · Member since 2017 · 89 posts · 44 votes
    9y

    Contact Missy at Visio Lending, tell her I referred you. 

    PM me if you need her contact info

    0Reply
  • Dong Yan
    Real Estate Investor · Irvine, CA · Member since 2016 · 129 posts · 42 votes
    9y

    I believe it is the LLC in the title make you disqualify for the residential loan. I knew tons of my friends get loan for the investment properties.

    I think you should get the loan with your own name and then transfer to a trust.

    Correct me if I mis-understand the whole situation.

    1Reply
  • Jay HurstBusiness Member
    Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
    9y

    As you pointed out, for a conventional loan you have to have the title in your personal name for six months. That is Fannie/Freddie not lender to lender. That being said, I am not really sure why you are having a hard time finding a lender or broker that can finance a cash out deal inside your LLC with a personal guarantee. That is pretty common and we do it all the time for our borrowers. The rates and terms are not as good as conventional but 30 year amortizations and even 30 year fixed rates do exist.

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    1Reply
  • Aaron Z.
    Investor · Virginia Beach, VA · Member since 2015 · 83 posts · 34 votes
    9y
    Somebody please chime in on why this won't work: Why not just purchase the properties in your personal name from your LLC? If the bank or Fannie Freddie are going to consider a transfer of ownership a sale and require 6+ months of seasoning, why not just go through the sale process rather than the refi process? I'm sure I'm missing something...
    0Reply
  • Collin Webster
    Investor · Denver, CO · Member since 2016 · 11 posts · 7 votes
    9y
    I've used companies like B2R and small local banks for refinancing as well. There is a bank here in CO that's based out of Salt Lake City. The local branch is called Vectra, think the parent company is Zion ________(? Something). They offer great HELOC terms on multiple properties and doesn't matter if it's in your personal name or an LLC as long as you have decent income, and if you own them free and clear as well, it's a very easy process. Hope that helps.
    0Reply
  • Lane Lundeby
    Investor · Sioux Falls, SD · Member since 2015 · 3 posts · 0 votes
    9y

    In the past I have purchased houses under my name, through a local lender (have them keep it in-house). Then after you have completed the renovations re-finance under the LLC. Yes, more fees but its frees up your cash for the next investment.

    Better yet if you can get a line of credit with 90-120 day terms before you need to finance or pay-off. Buy and renovate prior to the terms above expire and finance for 80 LTV. This may not work for existing properties but certainly for future.

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