New LLC line of credit

12 Replies

I have a property that I’ve recently acquired. All of the 11 windows seem to be the original install from 1943 with the counter weights in the walls and everything. After the window replacement, some cosmetic work, leveling, and rewiring the house will be livable and ready to rent.

My question is after I finish establishing the new LLC and have the property transferred to it, how do I apply for a line of credit to afford all the work to be done? The LLC could use the house as collateral for a secured line but we have no revenue or business credit as of yet.

Originally posted by @Jerry Hodges :

I have a property that I’ve recently acquired. All of the 11 windows seem to be the original install from 1943 with the counter weights in the walls and everything. After the window replacement, some cosmetic work, leveling, and rewiring the house will be livable and ready to rent.

My question is after I finish establishing the new LLC and have the property transferred to it, how do I apply for a line of credit to afford all the work to be done? The LLC could use the house as collateral for a secured line but we have no revenue or business credit as of yet.

Business LOC is determined by a couple of factors

1. Your history and experience

2. Your financial standing

3. The economic climate

If you have been doing RE for years and have a lot of money in the bank, you will be more eligible for a LOC. However keep in mind that COVID has banks on the more conservative side of things in terms of lending.

This was pre covid but I got an unsecured line of credit from a local credit union. Even though it was for my LLC I had to submit the LLC's information and my personal financial information. I also got an unsecured line of credit from Wells Fargo that was under my name.

@Jerry Hodges , how did you buy the property? Cash or do you have a note on it? If you paid cash, just ask around for referrals to small banks or credit unions that have setup LOC's for investment properties for other investors. Then just call them and let them know you have a property you'd like to get a LOC setup for. Get your LLC created, the bank will ask you for your personal financial statement and 2 or 3 years of tax returns. They will record a lien on the house with you as a personal guarantor when they setup the LOC. I do these all the time.

The bank will grant the loan to the LLC, but will require you to personally guarantee the loan.  Thus, your personal financials will be important.   Reach out to the small community / local banks.

@Owen Dashner the owner passed in 2007. Never married or had children. Two sisters also passed and can't find any heirs. The taxes haven't been touched since 2007. No record of probate.

Filed an Affidavit of Adverse Possession and new deed through my real estate attorney. The burden of property back taxes then falls to me (or my LLc) but they aren't all due at once because I didn't get the property through the back tax route. The county will work out a payment plan.

If title is not legally in your name no one is going to give you a loan, did a title company handle the deed transfer? Taxes need to be current at closing. Generally a HELOC line of credit with lower rates is for owner occupied with title in owner name. Lines of credit on investment property have tightened up greatly. Establishing a new LLC that didn't file income taxes, doesn't have bank statements to show cash flow is not going to help your desire to get a line of credit. There are commercial lines of credit for established businesses with 2 years IRS taxes showing net income.

How can a LLC that never filed tax returns demonstrate it has income or reliable credit? An unsecured line of credit like a credit card?

@Jerry Hodges

First, you really should purchase the property with the llc and not transfer. It's cleaner on your Title chain and saves you one closing if you go through with a full closing to potentially keep your Title Insurance, etc.

As a new LLC it will be tough. Getting some business credit cards (possible since you don't need to show proof of income) is one way. When you open the bank account for the LLC the bank may automatically approve your LLC for a business creidt card.

Otherwise, I agree with the other post that it seems like you will need a hard money loan.

So you have just enough liquidity to purchase the property but not enough to afford the rehab?

Originally posted by @Jerry Hodges :

@Owen Dashner the owner passed in 2007. Never married or had children. Two sisters also passed and can't find any heirs. The taxes haven't been touched since 2007. No record of probate.

Filed an Affidavit of Adverse Possession and new deed through my real estate attorney. The burden of property back taxes then falls to me (or my LLc) but they aren't all due at once because I didn't get the property through the back tax route. The county will work out a payment plan.

Who was the Grantor on the deed you recorded? I believe adverse possession in TX requires open and notorious possession for a period of years, three, five or ten depending on the circumstances. If you don't have that you probably don't have title and any improvements you make may be as a volunteer and belong to the true owner whoever that is. I doubt a title company will issue a policy insuring you, a lender or a purchaser without a quiet title action so I hope your planning on keeping the property and not borrowing against it. In thirty years of involvement in title insurance and real estate investing I can't recall ever seeing anyone obtain viable title under adverse possession.

 

Originally posted by @Jerry Hodges :

@Owen Dashner the owner passed in 2007. Never married or had children. Two sisters also passed and can’t find any heirs. The taxes haven’t been touched since 2007. No record of probate.

Filed an Affidavit of Adverse Possession and new deed through my real estate attorney. The burden of property back taxes then falls to me (or my LLc) but they aren’t all due at once because I didn’t get the property through the back tax route. The county will work out a payment plan.

If you don't have actual title I wonder if you have an insurable interest for a casualty insurance policy?