30 Year Loan in LLC?

Question

Hi All,

I have a hard money loan and I need to refinance it into a 30 year loan. I was told that I can do this into an LLC. I do not know of any lenders that do this. Is there such a thing. I would prefer to refinance into my llc then it will not show up on my personal credit. Would love to know if anyone has done this and the plus and minus to it.

Dan Gamache · Answer

@Angeline Mentor Private Lenders will offer 30 year terms and require the property be in LLC. You can go to as high as 75% LTV and loan is based off cash flow of property (& other factors) but you do not need to qualify off personal income or tax returns. Need to own house at least 90 days to use new appraised value.

Andrew Postell · Answer

@Angeline Mentor the short answer here is "yes" you can absolutely do this.  But you probably won't cash flow as well.  Generally speaking there are 2 main types of loans for investors:  “Conventional” and “Portfolio”

Conventional - I'll define these as loans that come from Fannie Mae and Freddie Mac (if you recognize those names).  These loans are all 30 year fixed rate loans.  They have the lowest rates we can find and since they are 30 year fixed...they allow us to cash flow better...which helps us qualify for other loans later. The draw back to these loans is that they are more paperwork heavy than the other "portfolio" types of loans....but if you have ever received a loan on your primary home, it's likely that you will go through the same type of paperwork here with conventional lending. You close in your own name here.  Lower rate, more cashflow.  Fannie/Freddie money = Fannie/Freddie rules.  NOT the bank's own money.

Portfolio - I'll define these loans as loans that come from the bank's own "portfolio" of money.  Sometimes referred to as "commercial" loans.  These loans are a lot more flexible than "conventional" loans.  Bank's money = Bank's rules.  If they like you, then maybe they will lend to you.  But since there is a limit to how much money the bank has access to....their rate will be higher...and usually a shorter term.  The most common portfolio style loan in Texas is a 20 year adjustable rate loan.  These loans are easier to get but the terms are different.  So a 20 year loan will have a higher monthly payment than a 30 year...so less cash flow.

Fannie/Freddie types of loans will be available everywhere and those rules might change SLIGHTLY between lenders.  Portfolio loans can run the gambit.  Since each lender controls it’s own money you will have to call around to ALL the banks to learn about all the programs.  A mortgage broker will help with this some…but even the best mortgage brokers don’t have access to ALL portfolio loans out there.

Anyway, I hope this helps in some way. Thanks!

Andrew Postell · Answer

@Ron Johnson generally speaking it's the property that's the hardest to find within the 1031 exchange period.  Traditional, conventional lending can close within 30 days.  And 75% is what Fannie/Freddie will use to help you qualify.  Thanks!

Andrew Postell · Answer

@Ron Johnson Fannie/Freddie will use rental income immediately to help you qualify for a new loan.  So as long as you are buying a property that cash flows your DTI should be BETTER for each property you purchase.

You also did mention avoiding capital gains.  Are you speaking to a 1031 exchange?

Andrew Postell · Answer

@Peter Nacion gosh, I could spend an hour on this so I'll try to summarize it as best as I can.

So if you can qualify for Fannie/Freddie loans then you will cash flow better with those loans.  Fannie/Freddie do require that you personally sign for the loan and that you close the property in your name as well.  Their money, their rules.  So what most investors do is they close in their name, and then transfer the title of the property to their LLC.  The loan will still stay under your name in this scenario though.

Now, let's say that you reach 10 loans...that's a good problem to have!  Just to refinance those loans to get out of the Fannie/Freddie loans would likely be cost prohibitive.  But if there is another benefit, BESIDES JUST FREEING UP the 10 loan limit....like a cash out loan for example...then maybe it would make sense.  But at the 10 loan limit, then just use commercial/portfolio loans on any NEW properties is likely to make the most sense.

So if you are ok with using Fannie/Freddie for a few transactions that will provide you with better cash flow.  If it something that you don't want to fool with, the commercial/portfolio loans will be your option.

Kerry Baird · Answer

Chiming in to give you more information.  I've used LendingOne (great experience) and Visio (realllly long closing, prepayment penalty and higher rate).

Peter Nacion · Answer

@Andrew Postell

I knew you would lead me in the right direction.  I spoke to many lenders in town and they really couldn’t give me a straight answer on this, thanks for all the good info!

Emily Di · Answer

@Angeline Mentor I've done this many times. The non-QM (qualified mortgage) programs are all different so you need to ask a lot of up front questions. One lender refinanced to my LLC with a personal guarantee but still reports to my credit (Impac Mortgage) which I have taken up with the bureaus. I just closed 2 refinances with RCN Capital and after getting a better understanding of how they price loans I felt that was a good process. A new thing experienced with RCN was that they want a full Alta title policy with extra endorsements which added about $1000 to my closing costs over the regular policy most lenders use. Not a big deal, but a surprise nonetheless.

I currently am in a stalled refi with Finance of America because they are requiring that I take out a commercial insurance policy so they can be listed as "additional insured." Again, never thought to ask this question up front because it's the first it has ever come up, and now I have paid for an appraisal and had my credit run. The additional cost of the policy negates the competitive interest rate so I'm going back through my lender list.

Others that I have spoken with, but not exhaustive because there are a lot who do not lend in California where I am, are Lending One, Lima Capital, Visio, and 5arch. I also looked at a blanket through Corevest but didn't like the idea of having to create yet another single purpose LLC and move the properties into it. PM me if you have any questions.

Jon Reed · Answer

You can get a commercial loan on your investment property. The bank will write the loan into the name of the LLC but you will be the personal guarantor on that loan (so if you default they will come after you and not just your LLC). I have not personally seen a 30 year commercial loan... all of our properties are on 20 year commercial notes which we got through a local bank.

Ron Johnson · Answer

Thanks Andrew!!!!

30 Year Loan in LLC?

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