Personal rentals reaching 10. Then what?

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Ana Marie B. · Answer

Another option @David Pearson:  If you have gained good equity in 1 of 10 properties, you could sell the 1 property and pay off one of  your other  rentals.  That way you have straight cash flow from the 1 paid-off home and have freed-up one slot so-to-speak so you can purchase another property under your personal name and not go the commercial loan route.

Kerry Baird · Answer

That’s the point that @Andrew Postell was making.  Qwnership is conveyed by a deed which is a different matter from a mortgage.  Moving the ownership from your personal name to the LLC does nothing to change the fact that the mortgage is in your name still.  The mortgage will still be out there on your personal credit.

To change the mortgage:  You can pay it off.  You can refinance.

To get past 10: you can buy another owner occupied residence. Live in it for at least 12 months.  And another.  And another.

You can go portfolio, as discussed above. A) small local lender or B) big boys which are LendingOne, Ridge Lending, Visio, FOAC and similar.

You can go commercial.

Andrew Postell · Answer

@David Pearson thanks for posting this.  This is a good problem to have! A lot of confusion to this topic so here's what you need to know:

• The actual rule here is 10 LOANS in your personal name.  Who owns the property is not important.  And if you have a loan that your company is not responsible for (and not you personally), it does not count against you.  And this rule is from Fannie/Freddie loans....or "conventional, conforming" loans.  There is an exception here that if you are buying your primary home and need a loan you can go above this limit (not every bank follows this...but more on this in a second)
• So what we need to do is point you in the direction of "portfolio" loans...sometimes they are called "commercial" loans but essentially these are loans that are NOT governed by Fannie Mae or Freddie Mac.  They essentially come from the bank's own portfolio of money...thus the name.
• Since each bank will decide how to lend it's own money, then each bank could lend it's money differently than another bank.  Technically to find out all the different types of portfolio loans you would literally have to call every single bank (there are 15,000)...so most investors either choose to have a mortgage broker at their disposal or some good local banks in the area of their properties.  At this level I would guide you to have 3 different banks that could lend you money based on different scenarios you might face.  These "portfolio" loans can run the gambit on the terms of their loans - some could have prepayment penalties, some could be variable interest rates, some might be 15 year mortgages...and some might be all three.  So when interviewing about these loan types make sure you ask more than the "what is your rate" question - you need to know ALL the ins and outs of these loans to make a good decision.
• OVERLAYS - what will really drive you crazy is that the bank that you spoke to COULD have an extra rule ON TOP of the Fannie/Freddie loan rules.  That might be why they are saying 10 PROPERTIES.  They are allowed to be more strict than what Fannie and Freddie underwrite.  If you have 10 properties but not 10 loans (again, under your own name) this might be their own overlay.  Some banks only allow 6 loans...and that is overlay.  Some banks have higher credit requirements or down payment requirements....it gets really confusing.  So try to work with a bank with NO OVERLAYS...or at least very few.  But this is why investors speak about using small to mid-sized banks.  They usually have less overlays than large lenders.

*WHEW*  I hope this wasn't too much info but if you have any further questions feel free to ask.  Thanks!

Andrew B. · Answer

I believe you would have to move the loan into your LLC, not just the ownership of the property. Even then, I think you run the risk that the bank will look at it as though you own it anyway...maybe someone with more bank knowledge can confirm.

Personal rentals reaching 10. Then what?

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