Getting a LOC when home is owned by LLC

2 Replies

Hello all,

I've been searching for the answer to this problem for a while, but I can't find anything definitive. I know I'm not the only one with this issue, so I hope some of you have some good information for us!

I have one rental property (and another in contract) that are owned by separate LLCs. It is for liability reasons. They are STR in the smokies. I have commercial loans based on DSCR. My husband and I are the only members of the LLCs.

That market is RAPIDLY appreciating, to the extent that the property I closed on in April is absolutely worth more now. And I'm doing some value-add improvements on the home in contract, including a kitchen remodel.

I want to get LOC on both homes in early 2022 to fund the next purchase(s)...let's just say the market either continues to appreciate, or stays stagnant at the very least.

****How do I get the equity out???****

The first lien on each property is not in my name, so I'd assume the LOC wouldn't be in my name, either. Is this just a commercial equity line of credit situation? And, if so, does ANYONE have any lenders that can do this? They would be able to see that they are income-producing properties, since I will have filed my tax returns at that point.

TIA!!!!

Lauren,

I've been a CRE lender for more than 20 years, as well as a paralegal. That said, it doesn't matter if the property is owned by an individual or an LLC, as long as you don't use the property (owned by the LLC) as your residence. If the property is used as a residence and it's financed under an LLC, that's a big no-no. Only investment properties may be owned by an LLC.

There are two ways to get equity out.  But I'd have to ask a couple of questions to be precise.  But, I'll go with a few assumptions -- you a first mortgage on both properties, and that they are with different banks.

First, you could get a Commercial LOC secured by the 2nd DOT on each property, but the first mortgage holder likely won't allow it unless they approve it first. Secondly, another lender doesn't want to be in second lien position behind your first lender. So, you'd really need to use your first mortgage lender to get the LOC.

Secondly, you could refinance both mortgages with one bank, pull out some equity as long as the LTV remains at 75% or less, and rental income covers the proposed debt service.

If you want to discuss further, we can set up a call.

Terri Wyzkoski I should have mentioned that the lender for both properties is a private lender that only does purchase and refinance (including cash-out), and it's a loan product that is specific to income producing short-term rental investment properties only (no primary/second home stuff)...however, there is a 5-year prepayment penalty. Otherwise, I'd have gone with that. But I'm going to message you privately.