New to this forum and couldn’t find an answer so here goes. a few levels to this question and appreciate any input.
I am “inheriting” a commercial property of my parents — they are planning to transfer company ownership to me this year. They took out a commercial loan on it many years ago and have about 3 years until loan maturity.
The property is worth considerably more than it was when they first financed (IE like double or triple) and rental income is up about 30-40%.
I am interested in refinancing to get extra cash out for other endeavors.
So my questions are:
1. If there is any benefit in just refinancing with our current bank — what fees, if any, can be avoided? I imagine that during refinancing it’ll be like starting the process all over again IE getting a new appraisal, then reviewing all our taxes, rent rolls, etc, so why not just shop around?
2. Next and more complex question would be if because of my new ownership situation (IE our previous years taxes don’t even reflect me as owner yet) I’d be better off just starting fresh with a new bank. Will either the current bank or new lenders care or be weary that the property just got transferred to me, some newbie owner? FYI my own personal finances are rock solid. But this is a major reason I haven’t personally approached our current lender because they technically don’t even know that ownership is being transferred to me and I worry that it’ll Piss them off somehow.
FYI this is an LLC.
3. This is the most oddball question but maybe someone has experience with ownership transfer. Per our accountant all we have to do to transfer ownership from my parents to me is report the company taxes accordingly this year to reflect my ownership. That and we plan to just scribble something down at a lawyers office. Im surprised that’s all that is involved. Does a bank want anything further than this??
Thank you all very much in advance.
hello Robert ,if your bank can offer you a good rate go with them ,you will always being paying fees, some lenders fees or more some less,yes the lender will be ordering the appraisal for you. No the lender or your bank will not be weary of the property being transferred to you .No you will not be pissing off your lender in trying to get a loan ,they will welcome your business.All you parents need to do is to transfer ownership to you ,a good atty can facilitate that paperwork for you
Thank you very much!
Hey Robert, since the property is in an LLC, you should be ok. You & your parents are just restructuring the LLC. Ownership title (the LLC) will be the same and banks want that continuity. As a safeguard, you could keep your parents on as minority owner ship, ex: 70% you 30% them. When refinancing, you would be listed as the majority owner and could be the only guarantor for a note. Be sure LLC documents outline you as a managing member with authority to sign for a refinance.
Regarding the existing lender vs. new lender, call around. Sometimes an existing lender can waive some loan fees since they already have your note and you've paid on time (right :)). Best bet is to call around. Another factor, can you show tax returns or do you need to alternative financing (bank statement or stated income, etc) to get the loan. If you can document income, you will get better financing.
Great thanks for the info. Yes it’s mixed commercial rental income property so I can document income with corporate tax return!
A few points for you to consider
- Some banks and lenders will require a seasoning period after a transfer of ownership. Before you do anything, ask the lender they are with if that will be an issue. Let them know what's going on so you can prepare to either move the loan, or go with them. Going with them will probably be the least expensive.
- If you're rearranging the LLC, make your parents minority owners, but use a figure that's less than 25% so they won't have to provide previous tax returns. Also stipulate that you have full and sole signing authority.
Stephanie thanks for the information!
Just learned of a new “doh” today. Prepayment penalty. We’ve had the loan for 7 years now (it was a 10 year, 5/1 — I think that’s the fancy way to put it). I had thought since we were so far out it’d be a small penalty if any, but now I’m learning years 1 and 6, 2 and 7, 3 and 8, 4 and 9 are considered equal for prepayment % (5,4,3,2,1 percentage respectively), which is nuts to me but I’m sure is nothing shocking to you folks who do this daily.
Anyone ever hear of CURRENT lender waiving this penalty if the new loan is with them also?
If not can anyone help me brainstorm a way around this? I just need more capital... can I simply ask to take out a new separate loan with them since my property is worth that much more now? I’m waiting to hear back from loan officer but would love your expertise. Thank you all.