cash bought,LLC owned rental property-How can I cash out/borrow?

16 Replies

I have cash bought, LLC owned property.

I wish to keep the property & borrow against it to get a line of credit or a cash out refi.

-Does anyone know of lenders who who will assist me?

The 5 local banks I contacted so far have told me they cant help because the LLC owns the property and they would not allow me to add my personal name to it to guarantee a loan.

Hey Joe,

Some banks will work with the LLC with higher rates, it just takes some shopping around. Another strategy I have seen many investors use is implementing a Land Trust as the "middle-man" between the property and the LLC. In this case you would refinance the property in your personal name, then transfer the property into the Land Trust, assigning yourself as the trustee and the LLC as the beneficiary. This type of transfer is protected by the St. Germain Act from the Due on Sale Clause, as the Land Trust is considered an estate planning tool. This article covers the strategy in a bit more detail.

The Land Trust is also useful for any future estate planning and can also provide more privacy through removing your name from public record if created correctly. 

Let me know if you have more questions, I've seen it done in every state and can provide more info if you would like.

@Joe R.

You would have to go with a commercial or portfolio option lender. Rates will probably be a little higher and adjustable. 

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Originally posted by @Joe R.:

I have cash bought, LLC owned property.

I wish to keep the property & borrow against it to get a line of credit or a cash out refi.

-Does anyone know of lenders who who will assist me?

The 5 local banks I contacted so far have told me they cant help because the LLC owns the property and they would not allow me to add my personal name to it to guarantee a loan.

 How long have you owned it?

Look in commercial space or a hard money lender that does has cash out loans for buy and holds, they can definitely lend to an LLC

forgive me if I ask stupid questions. I have only now secured my first rental. and am in dire need of experience. 

I am also interested if possible or wise to take hard money loan for down payment for multi housing. 

If you paid cash for the property, own it in a LLC, and now want to get cash out, look at using private money. Definitely don't use hard money when you have that large of an equity position. They will be like sharks with blood in water to lend you money at outrageous rates for short terms in the hope that something happens so you can't pay them back so they can foreclose on your property. No need to take that level of risk with your equity positions. There are many private money lenders who would love to take a first lien position with a fully paid property, and charge a low interest rate and a longer term.

I had no problem finding banks willing to loan to our LLC. Albeit these are all commercial loan terms w/ personal guarantee but that is pretty much the standard from my understanding if you are doing multi-member LLCs. All the one's I looked into are in PA so not sure if that would be an issue but I can give you the names if you would like. There should be no problem locating one on commercial terms if your looking for conventional then that is a different story that I still have not figured out yet.

@Joe R.

Joe I was doing an unrelated search and the results showed  your post and the profile for mortgage broker Upen Patel.  His Bio is long but it indicates he has experience lending to LLCs.

I have never worked with him nor do I know him at all so just passing along as an option since you are diligently looking for an option.

https://www.biggerpockets.com/users/UpenPatel

Good luck

I see and hear LLC all the time. Why dosnt anyone operate S-Corp instead, as the self employment tax is avoided? So I am obviously missing something. What is the pro con with LLC vs S-corp?

Originally posted by @Joe R. :

I have cash bought, LLC owned property.

I wish to keep the property & borrow against it to get a line of credit or a cash out refi.

-Does anyone know of lenders who who will assist me?

The 5 local banks I contacted so far have told me they cant help because the LLC owns the property and they would not allow me to add my personal name to it to guarantee a loan.

 Find a commercial lender.  That is where I would start.  Hard money isn’t for long term and it would be a insanely high interest rate for no reason.   

Run it like a business and the lenders will do their job of lending your business money.  It will be personally guaranteed by you. But no biggie. 

The local banks and local credit unions are the best options for rates/terms (make certain that you are communicating with the "commercial" lending department - even if the property is a single family rental, as it is titled by an LLC, making it a commercial transaction). However not all local banks or credit unions offer this product when titled in an LLC.

A few national lenders that finance single family and 2-4 unit when titled in an LLC that I am aware of are: Silver Hill Funding, Velocity Mortgage, Sprout Mortgage and Visio Mortgage (they are more expensive). Since you own the property free & clear, it would be a cash-out refinance (if you had existing liens to pay off it would be a rate & term refinance). Keep in mind that local banks & credit unions that offer this product may not have a minimum loan amount, but the national lenders usually do. Typically $100K is the min. loan amount, however I believe that Sprout and Visio go lower than that. Hope that helps.

Originally posted by @Kenneth Collins:

I see and hear LLC all the time. Why dosnt anyone operate S-Corp instead, as the self employment tax is avoided? So I am obviously missing something. What is the pro con with LLC vs S-corp?

S-corporations require you to pay yourself a "reasonable" salary. This will include both sides of the Social Security tax (your half and the corporation's half) which in essence is the same as the 15% self-employment tax. It's just that the corporation is paying half of it. But you're the corporation. So you're still paying all of it in the long run. 

There are bigger reasons that S-corps aren't ideal for buy and hold investing. Namely that you can't transfer title on a property to your name (or anyone else, such as gifting it to a child) without the IRS treating it as a sale. That's expensive. LLCs don't have that problem. Transfer to your heart's content.

I'm not a lawyer or CPA, just a long-time owner of an S-corp and believe me, I'm ready to be done with it. LLCs look like a nap in a hammock from my vantage point.