from Residential to Commercial lending best strategy

[Chris Doloriert]

I own several residential multi families and I will soon have to get more properties through commercial lending, what's the best advice in how to restructure residential properties for example under an LLC altogether to get non commercial lending?

[Beth Johnson]

@Albert Bui

[Chris Doloriert]

Quote from @Beth Johnson:

@Albert Bui

 Can Albert help me with this issue?

[Ryan Hehman]

Hi Chris - what's the end purpose for putting all your residential properties in one LLC? If you'd like to refinance them all under one loan, take cash out, and use that to purchase a new property, then a commercial portfolio loan is going to be your best bet. How exactly to structure the portfolio loan will depend on some of the property specifics and the amount of equity in each. Conventional financing with a residential lender is going to be more difficult and in most cases impossible if the properties are held in an LLC. Feel free to shoot me a DM if I can be of any further assistance.

[Albert Bui]

Quote from @Chris Doloriert:

Quote from @Beth Johnson:

@Albert Bui

 Can Albert help me with this issue?

Sure Id be happy to walk you through this as I've been through it myself personally on my portfolio. 

We're an active lending in the 1-4 conventional space but eventually we all make that transition into the 5+ MFH space which requires different metrics to adhere to (debt service coverage ratio, net worth, liquidity, and experience) that is not cared for in the conventional space.

The conventional space is mainly ran through AUS or automated underwriting systems for 1-4 unit properties when it comes to fannie mae or freddie mac.

Its good to have the capability to do both so you can seamlessly move from one type of financing to another and have the entire toolbox of loan products available to you (private money loans PML @Beth Johnson, HML or hard money loans/bridge, conventional, commercial variants (there are large banks, small communities, regionals, credit unions, and fannie freddie agency in the 5+ space too, along with Life companies or LifeCo, CMBS collateralized mortgage back securities).

Let me know what questions might come up on your end.

[Bob Reinhard]

It is not what you call it, it is what it consists of. If the lender says "x" properties is commercial then lumping them together makes no difference.

[Mike Klarman]

Well, definitely open an LLC. That's first. Secondly have a title agent perform a warranty deed or quitclaim deed for you on the properties you own. They allow you to transfer ownership from you the individual to your LLC which shields your personal assets from any law suits.

Secondly, once that is set-up, You'll put your LLC down on the purchase contracts as the buyer of the property and it is good to get in with a HML or Private Equity Lender and let them vet you. Get your LLC pre-approved for a price range you are comfortable with. This lets your sellers and their agents know that your offer is for real.

From there, once you have a good relationship with a lender you trust and feel comfortable with, you will send them your entity docs: Opr Agreement, Articles or Org, and EIN from IRS and photo ID. That stuff is needed for every deal but once you send it in once your lender will have it when you do a deal. If you use the same LLC for all deals then the auto-draft payment form and the voided check will only have to be done once as well. If you manage the properties then the property management questionnaire may only need to be done once as well.

So you may get to the point that for any new purchase you make all you'll need to do is send in the contract and then wait for the appraisal to come back to use those values to get the HOI.

For a refi there's more docs needed: Need a Verification Of Mortgage, Payoff figure if any, Deed if owned outright, last two months rent receipts.

I do transfer of ownerships all the time with clients if you have any specific questions about that feel free to reach out.

[Ruth Blue]

@Chris Doloriert

My MOM and partner @rhondaBlue has developed a relationship with a local lender who offers financing as part of a portfolio. She has several Residential loans, a few commercial loans, as well as line of credit. With commercial lending like this it doesn't show on credit bureau as they don't report. Her most recent purchase was a condo in Destin,FL. Most investments are Huntsville Alabama single family and Vacation rental in Pigeon Forge Gatlinburg area. Maybe this type of lending is what your looking for?

[Kyle Deutschmann]

Quote from @Chris Doloriert:

I own several residential multi families and I will soon have to get more properties through commercial lending, what's the best advice in how to restructure residential properties for example under an LLC altogether to get non commercial lending?

Depending on the lender, you may be able to change the deed at closing from personal ownership to an LLC if you refinance them. Or if they’re Fannie/Freddie conventional loans they pretty much have said they won’t call them due if you’ve paid on time for a year and transfer to an LLC solely owned by the same original borrower. In terms of lending options, there are residential lenders we work with that will lend on 1-4 unit properties in an LLC or you could also use a commercial lender and they’ll look at the debt service coverage ratio as opposed to your personal income. I would get the LLC setup first so you can provide the necessary documents to whichever lender you choose to work with. 

[Drew Sygit]

@Chris Doloriert

You may want to consider speaking with a smalllocal bank or credit union, about refinancing your FNMA loans into a blanket commercial loan in an LLC. You'll still have to personally cosign for the loan, but it will free up your 10 FNMA loans again.

Conversely, you could go with an online commerical lender like CIVIC that will lend on a 1-4 family property with no income verification.