Rental Property Investor · Montclair, NJ · Member since 2021 · 11 posts · 0 votes
Hi BP Friends,
Currently I have 4 small investment SFHs under my name (each has a conventional loan). I am thinking of transferring these properties to my single member LLCs and getting them refinanced through portfolio loans (from a portfolio lender who keeps all loans in house). Would that free up 4 of my conventional loan quota?
I thought the answer is Yes until I listened to a podcast recently and a speaker said the answer would be No because SMLLCs flow everything (including the 4 portfolio loans) to me.
I haven’t reached out the 10 conventional loans yet, but am planning on getting there in the near future by getting higher fair market value SFHs using the lower rates offered by conventional loans.
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
5y
@Sean Hou the 10 loan limit is not 10 loans, it is actually a "10 financed properties" which means any property that a loan (or multiple loans) secured against it. For example if your primary residence has a conventional loan and HELOC, that only counts as 1 financed property even though it is two loans. If your personal home has no conventional mortgages, but a HELOC secured against it, that is 1 financed property. If you have a business loan that is personally guaranteed, that could be counted too. Assuming you are just cosigning for your business, that may not show up, but it depends on how the bank is reporting it.
I have run up against the 10 financed property limit a couple times. Last time I did two cash out refinances, then took the cash out to pay off two other loans. That allowed me to keep the benefits of low rate and long term lock of conventional, while freeing up two financed properties.
I am not sure how close you are to the ten limit, but also be aware they increase cash reserve requirements as you scale so that is another consideration.
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
5y
@Sean Hou very sorry here but the Fannie/Freddie limit is NOT 4 loans....it's 10. If a lender is telling you about a 4 loan limit that is THEIR PERSONAL limit. And please forgive me again, they might be saying it's the Fannie/Freddie limit...but it is not. Don't take it out on the front line person who told you this. That might be how the company trained them. So it may not be their fault that they shared this information in this way. But you can absolutely get 10 loans....you'll just have to go to a different lender with less rules.
Try posting in that state forum. Bigger Pockets has some great state forums and usually there are good locals that monitor those. Also, try some local real estate meetup groups. Meetup.com is a good resource for those but some of the groups will also post here on Bigger Pockets Marketplace too. Even facebook might have some good local groups for you. But post locally for this. That’s the best bet. I also wrote an entire post on how to find real estate friendly lenders that you can read HERE.
Rental Property Investor · Montclair, NJ · Member since 2021 · 11 posts · 0 votes
5y
@Andrew Postell Thank you, Andrew. I do know the limit for conventional loan is 10/ person. My question is - if I transfer 4 properties (currently financed through conventional loans and under my personal name) to my single member LLC (to be re-financed through portfolio loans), would doing that free up 4 conventional loans within my quota of 10? In other words, would I be eligible for applying for 4 additional conventional loans in the future by doing so? Thanks!
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
5y
@Sean Hou ah, thanks for the clarification. I guess I read your post in too much of a hurry. But yes, the concept is correct. A portfolio'd loan would be in your company name more than likely. And you would put those properties in the company name as well. So if you aren't obligated on the loan....then they don't count against your 10 loan limit.
Hoewver, if you were to ever face this scenario I would recommend that you refinance for some OTHER reason here. Meaning, if refinancing those 4 properties gives you cash out, or lowers your payment, or some other benefit then that's why I would do this. In other words, refinancing costs money. So, if you were to buy your 11th property with a commercial/portfolio loan, then you would only have to pay closing costs on 1 property - when you purchase it. But if you were to refinance 1 loan, to free up another loan, then you are actually paying closing costs TWICE to have 1 property - once on the refinance and once when you purchase. So there needs to be another benefit here besides just freeing up a loan. I hope that makes sense.
Rental Property Investor · Montclair, NJ · Member since 2021 · 11 posts · 0 votes
5y
@Andrew Postell Thanks a lot for your response! Great point on the cost and benefit analysis on refinancing just to free up a loan. For my case, besides freeing up 4 loans, I could also lower the monthly interest payments. That’s another drive to refinance these loans.
Yes- the plan is to place these properties under the SMLLC’s name. But I would have to personal guarantee on the new portfolio loan for the SMLLC though (I guess no lender would lend money to a newly formed SMLLC without requiring the single member to personal guarantee the loan). Would that make me "obligated on the loan"? Then the new portfolio loan would count against the 10 loan limit? I thought as long as the portfolio loan is not Freddie and Fannie related, it would not count against the 10 loan limit. Thanks!
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
5y
@Sean Hou ok, got ya. So if the loan is under the business name, even if you personally guarantee it, it does not count against your loan limit with Fannie/Freddie. Granted, I'm having to speak for EVERY SINGLE LOAN here...which is somewhat impossible...but every single loan that I have seen is structured so that it is in your company name. So you would sign on behalf of the company, possibly still personally guarantee it, but it still won't count against your loan limit.
Rental Property Investor · Chicago, IL · Member since 2018 · 30 posts · 4 votes
5y
@Sean Hou with Fannie you can actually do 15 i have more than 10. Commercial loans have no such limit I have those too. They arent even reported to credit bureaus
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
5y
@Sean Hou the 10 loan limit is not 10 loans, it is actually a "10 financed properties" which means any property that a loan (or multiple loans) secured against it. For example if your primary residence has a conventional loan and HELOC, that only counts as 1 financed property even though it is two loans. If your personal home has no conventional mortgages, but a HELOC secured against it, that is 1 financed property. If you have a business loan that is personally guaranteed, that could be counted too. Assuming you are just cosigning for your business, that may not show up, but it depends on how the bank is reporting it.
I have run up against the 10 financed property limit a couple times. Last time I did two cash out refinances, then took the cash out to pay off two other loans. That allowed me to keep the benefits of low rate and long term lock of conventional, while freeing up two financed properties.
I am not sure how close you are to the ten limit, but also be aware they increase cash reserve requirements as you scale so that is another consideration.
Rental Property Investor · Montclair, NJ · Member since 2021 · 11 posts · 0 votes
5y
@Sid Shankar Thank you, Sid. Would you mind elaborating on "with Fannie you can actually do 15"? I thought 10 is the loan limit for Freddie and Fannie loans.
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
5y
@Sean Hou just for clarification, it is 10 financed properties but you can go over 10 if you are buying your own primary home. So if you have 10 or 11 or 25 loans....you can always get 1 more with Fannie/Freddie as long as it is your primary home. But if you are buying investment properties then you won't be able to go above 10. Hope that makes sense.
Rental Property Investor · Montclair, NJ · Member since 2021 · 11 posts · 0 votes
5y
@Andrew Postell Thank you, Andrew! What about a second home? Would that have the same treatment as the primary home?
Besides the 4 SFHs (conventional investment loans), I also have my primary home and one second home both financed through conventional loans. How many more conventional loans can I get? 4 (counting primary & 2nd home against quota) or 5 (counting 2nd home against quota) or 6 (not counting primary & 2nd home against quota)? Thank you!
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
5y
@Sean Hou you can only go above 10 if you are buying a primary home. So if you have a mortgaged property, whether it's an investment property or a "second home" they will still count toward the 10 loan limit.