Cash out refinance for LLC owned property
Hello BP. I would like some advice on securing loans in the name of a LLC. I currently hold a property in Philadelphia. Property is owned outright in a LLC, valued around 180k and occupied with a paying tenant. I am willing to use my personal name and income to "guarantee" the loan. So far, two lenders has asked me to transfer title to my personal name, which is not my end objective.
1) Since the property is in a LLC, do I have to go for commercial loan?
2) What are the typical interest rates? (750 credit score, Reasonable debt to income ratio). I am getting offered around 6.25% for 30 yr fixed from local broker.
3) Should I wait until I own more properties (free and clear) under the LLC and apply for a portfolio loan? How many units do you need for it to become a portfolio? Would the rates be more competitive then?
4) Should I purchase properties in my own name in order to secure conventional financing, and then transfer title to LLC via Trusts?
Any feedback or links to relevant discussions would be greatly appreciated!
1. yes, you do not have a choice it will be a business loan.
2. from my personal experience, credit above 800+ i shopped around and got 5.5% @ 5yr +15yr arm through LLC with myself as the guarantor. My refinance rates with tenant occupied property is in the similar terms.
3. if your're seeing deal you want to consider now, i'm not sure how this will help. but i think each credit union and bank may treat this question differently.
4. I have properties both in LLC and personal. I prefer the LLC over personal because it hides me from property searches showing my name. But from an insurance prospective, i think its all the same. Property insurance--> Umbrella insurance, all the same to me.
I have other investors I know in philly. i have considered the wagon...still pending
Thanks for the info @Eric Lau.
Yes, the Philly area has been very popular, but I am a little behind the curve. I think I have approached my business in the wrong way. I am regretting that I purchased the property in a LLC. It is limiting my ability to leverage and expand.
no regrets. you can only learn from this. You can still leverage your money with the right bank or credit union that is willing to do business with you. trust me, it just takes a good number of calls to banks/CU to find the right person to speak to. in the beginning you will be jumping hurdles. Providing all types of documents but once you pass that part you can use "your" money again.
will it be higher %, maybe and most likely yes... but if you find the right deal you want to fund and the numbers make sense. do not stop there.
@Jimmy Lin You made the statement "two lenders has asked me to transfer title to my personal name, which is not my end objective"
If your end objective is to own in the name of an LLC then why cant you just quit claim back into the LLC after the loan is closed?
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1. Commercial or Portfolio financing is the only option.
2. Rates will be in the 6's. Are there points with that rate for a 30 year fixed?
3. You don't need to purchase more property. The loan will be over $100k so there shouldn't be an issue with financing.
4. A living trust is allowed with conventional financing whereas an LLC is not.
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@Eric Veronica That would be something to consider. The main reason I want to secure the loan in the name of the LLC is because of the limit on the number of loans you can have in your personal name. Also, I know that lenders typical don't enforce it, but this would violate the due on sale clause correct?
@Jerry Padilla Yes, I believe the GFE quoted 0.8 points.
Jimmy,
I'm in the middle of the same process with my bank (Wells Fargo). I've spoken with several folks within their organization and the story is generally the same. Yes this triggers the due on sale claus, but none of them have ever seen it acted on in these circumstances. They regularly have clients who transfer title to refi, then transfer them back into the LLC. My Attorney said the same thing, that he's never seen it actually persued (due on sale) in this instance. Plus, usually you have a set time to correct the issue, which would only require you to transfer it back into your name. I've chosen to transfer both of my proerties into an LLC and deal with any issues that may come up with the bank, if any.
Good luck, and let us know what you end up doing.
@Jimmy Lin @Tyler J Askin here is a link to another thread which pinpoints the exact spot in the Fannie Mae selling guide which explains exemptions. Thanks to @Chris Mason for writing the detailed explanation
@Eric Veronica THANKS!
@Tyler J Askin Are you paying a transfer fee every time you switch title?
@Jimmy Lin In my experience that varies by state. That is one of those questions that I would go right to the source and ask the county directly.
Everyone saying that commercial financing is the only option are wrong. I'm literally closing next week on a cash out refinance on an investment property in the Boston area with a local savings bank and my property is in an LLC, and they are giving me a 10/1 ARM at 4.375% doing a cash out refinance. They're not requiring me to transfer to my personal name, I was just honest up front with them and they asked for LLC documentation and tax returns. Done deal.
EDIT: Perhaps I have an advantage being in a larger city, however, my point is the same. There ARE other options out there.
We do, but it's not been frequent enough for the cost to effect us.
@Christian Nachtrieb Good post man, and so very true. I've found being honest and upfront gets me farther than trying to end around things. Never assume the answer is no!
@Jimmy Lin Yes, you will be paying transfer tax in Philadelphia if you're transferring title from your personal name to an LLC or vice versa.
@Jimmy Lin @Eric Lau @Tyler J Askin @Eric Veronica @Jerry Padilla
Thank you all for this thread. Just the questions I had in mind this morning for my LLC owned condo. Started making those calls to local banks and CU's as of a few minutes ago. First local bank on the line informed for an LLC owned property of over 1 year, they can provide conventional mortgage or a LOC on appraised price. If under a year, on purchase price. She is going to confirm what she gave me over the phone with others on her team such as underwriters. I would like to update the thread with any updates on what I have learned.
@Mit P.
Please keep us updated! Im am curious what kind of rate they are offering.
Originally posted by @Eric Veronica:
@Jimmy Lin You made the statement "two lenders has asked me to transfer title to my personal name, which is not my end objective"
If your end objective is to own in the name of an LLC then why cant you just quit claim back into the LLC after the loan is closed?
This is what was told by my lender.
To do a quit claim deed right before closing on your refi, and again back to the LLC once's it's done.
@Joel Braver I have considered doing so, but I would be accruing transfer tax for each title transfer. That would end up being equivalent to 4% or 4 points.
@Jimmy Lin We own properties in Philly. Transfer tax for the city is outrageous, so consider that before making any transfers. Also, contact local credit unions or banks and ask for portfolio loans. You will not get 30 yr fix, but they may offer 15 yr fix with 25 or 30 yr amortization. They will want to see your P&L and cashflow.
IMHO, if your insurance can cover your personal and business asset, then there no reason to place your property under LLC (for obvious reason). Privacy is non issue, b/c they can find you if someone really wants to, unless your LLC is under WY or AZ something like that.
We started to purchase our properties under LLC to protect our personal asset as the reason noted above. Don't worry about the loan limitation. There are plenty of other ways to buy aside from traditional loans. Cross that bridge when you get there. Good luck!
Thank you @John Kwon.
Update: I went to a real estate meet up, and got convinced to sign up for a 3 day seminar. The seminar was very educational, especially for a new investor. I practically jumped out of the chair when they brought in a mortgage lender from a local bank as a guest speaker. The lender is specialized in working with investors. Needless to say, I jumped on the opportunity! We are now in the process of closing two portfolio loans, 10/1 ARM amortized on 30 years with 4.25% interest. And no, they had no issues with me holding title in my LLC!!
A cash out refi is one of the faster and easier loans to do with the lenders who aren't just average joe type of hard money lenders. Most will only do 50% though. A lot of options and great lenders out there!
4.25%, 10/1, amortized over 30 years is very competitive. Kudos to you.
What kind of fees does the bank charge? points? seasoning requirement? I know you are not allowed to post the name of the bank here on BP, can you please direct message me so we can discuss offline.