I have a title/deed question on my BRRRR using delayed financing. This is my first B&H property, I paid cash and took title in my LLC's name. My rehab is complete and it's being marketed for rent. I'd like to refi out of it, but I'm curious how that would work since my LLC has the deed, and I have had a hard time finding a lender that will cashout refi in an LLC's name. Is this a possibility? Would I have to "sell" it from the LLC and take title in my personal name to get the loan, then transfer title back to the LLC once the transaction is complete? (I'm aware of the due on sale clause possibility)
A cash out refi is my first preference, but I'm also considering a HELOC collateralized against the property, which seems like an easier solution if I can't get around the issues with the refi.
If anyone can help me out with this, I would GREATLY appreciate it! Wishing everyone much success in 2019!
@James Palassis I'll address the LLC issue first and then the Delayed Financing item.
If you are using a Fannie/Freddie loan then those loan types require you to close in your name. And the property to be in your name as well. We try to get Fannie/Freddie type of loans first because the rate and terms are so much better than other loans. That allows us to cash flow more....which in turn allows for us to qualify for more loans later on.
So what most investors do is they close in their name and then title the property back to their LLC after closing. Please understand I am not saying that titling a property in an LLC is the right strategy...I am just saying if that's what you want to do then that's how you do it with a Fannie/Freddie loan.
Now, let's say that removing your LLC from title is a deal breaker for your strategy. Then you need to avoid Fannie/Freddie loans. You would receive a commercial/portfolio type of loan. Most of those will be 20 year adjustable rate loans that have a higher rate. Many investors are very successful with these types of loans. Again, not advocating for an against anything just pointing out the differences.
So if you did use commercial/portfolio loans...they may not even have "delayed financing" as an option. Or they may/may not have any requirements to take cash out in the first place. Since each bank decides how they lend on the commercial/portfolio loans then there's not a reliable method to predicts what each bank will require.
*WHEW* That's a lot! But wait....there's more!
I wrote an entire post on the proper method to structure a cash purchase and you can find that post HERE
Feel free to tag me with anything additional. Thanks!
@Andrew Postell - thanks so much for the detailed answer! I check out your post. Thanks again.
To get a conventional loan, Fannie or Freddie, you will need to quit claim deed the property from your LLC to your personal name. There is no federal taxable event from this as you are the majority member of the LLC. Once its in your personal name, you can then set about the delayed financing through Fannie Mae.
Good news for you, Fannie Mae changed their rules just over a year ago, they now allow you to quit claim the property to your LLC after the refinance is done, without it triggering the due on sale clause. They allow this so long as you are the majority member of the LLC or the parties on the loan, are the majority members of the LLC.
The alternative is Non-QM or Portfolio loans. You can do 30 year amortizations on a fixed or a 5/1 or 7/1 ARM on these loans in the name of the LLC. You have to sign a personal guarantee, but the loan and title can be done in the name of the LLC. Not all lenders do these loans, so you will need to find a broker or a corespondent banker to have the fullest access to all these loans.
On the Non-QM or portfolio loans, you can do a full doc loan, or a bank statement (to prove income) loan or you can do an Investor Cash Flow loan where the property just needs to rent equal to or more than the PITI payment. You don't show any income or employment on the application for this kind of loan. You can go up to 90% cash out depending on your credit scores and the program, all with no MI or mortgage insurance.
You brought up a HELOC. One of the toughest HELOC's to find is a HELOC on a rental. There are very few lenders that will do them, but they do exist. The best HELOC I have ever seen on a rental is Pen Fed Credit Unions program. You can go up to 80% on a rental so long as you own 4 properties max. including your primary residence. As to if they will do it in the name and titled as the LLC, that I don't know, you would have to ask them? But worth a call?
I hope this helps?
@Kevin Romines - thank you for the information. Very helpful about quit claiming to me personally to get the loan. Awesome intel!
@James Palassis to clarify, only Fannie offers delayed financing and you will need to source the funds used for purchase. If you cannot then you will need to do a regular cash out refi which you will need to wait for 6 months if you are using the new value. Of course rates are better on the delayed financing.
Next time you could also consider doing a FannieMae HomeStyle renovation loan for investment properties, 15% Downpayment and that includes your renovation costs, also you can roll into the loan amount up to 6 months of martagess during the renovation Period. You can refi or sell after