Financing recommendations for complicated and new ownership structures

Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes

10mo

Thanks for all the details. Here is what I would do in your situation.

The primary benefit of a DSCR loan is that it relies more on the property than the person. However, that is not the only type of loan you can get. I would look into commercial bank loans. I've done that before and they usually don't care if the LLCs are new.

I also would purposely NOT get one loan. I'd get one for each apartment and then one for the group of houses. That will give you a lot more flexibility going forward. If you want to do a cash-out refi, you could refi a portion of your portfolio, rather than the whole thing.

I would also sell off the condos. Generally condos are not great investment properties. The reasons are many and often discussed here. I would use the cash from the sale of the condos to fix up or reposition the rest of the portfolio.

The two SF homes that were personal residences, I would talk to your tax advisor about those. If you lived in them 3 of the last 5 years, it may be much smarter to sell those. By turning them into rentals, you might take long term capital gains and transform them from tax-free to fully-taxable.

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Justus Gries

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Member since 2024 · 3 posts · 1 vote

10mo

Thanks for the reply and guidance, Greg!! The commercial bank loan ins't something that crossed my mind but I'll certainly investigate.

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Drew SygitBusiness Member

Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes

10mo

Agree with @Greg Scott about the financing.

Portfolio loans will limit future sales, refinances, etc. Better to just get a single loan on each property as needed.

Regarding the 2 SFRs that were personal residences, you should be inheriting them at their currnt market values. So, there is no tax benefit to selling them. If you havent already, check with a CPA that knows SFR rentals.

Condos are easier to manage, but often do not cashflow as well as houses - unless in a destination location. Then, they may be great to hold onto. Check with a local agent or PMC (hopefully the one you hired) with a LOT of rental experience.

QUESTION: if the properties are all free & clear, why won't the cashflow cover rehabs, requiring loan(s)? Are you using some of the cashflow to live off?

Why the rush for capital improvements?
- Have seen MANY newbies fix rentals up as if they were going to llive in them instead of the SMARTER strategy of "Maintaining to the Neighborhood":(

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Justus Gries
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Member since 2024 · 3 posts · 1 vote
10mo
Quote from @Drew Sygit:

QUESTION: if the properties are all free & clear, why won't the cashflow cover rehabs, requiring loan(s)? Are you using some of the cashflow to live off?
Why the rush for capital improvements?
- Have seen MANY newbies fix rentals up as if they were going to llive in them instead of the SMARTER strategy of "Maintaining to the Neighborhood":(
Thanks for the comments and yeah, most of this strategy has already been passed through the CPAs and Attorneys to meet some long-term goals with the portfolio.

To answer this specific question it's because life isn't so clean with plans and there's too many variables to unpack here. My job situation has changed which allows us the opportunity to use this new business venture to offset our personal taxes. We've also been through a few smaller projects so this will allow us the best success to get the units available for the higher demand timeframes. Finally, our long-term goal is to be able to have this portfolio fully support a transition to early retirement in 5 years.

Fortunately I'm intimately familiar with the properties, the historical maintenance and costs, and why some updates and improvements were deferred so it's really just taking advantage of our current situation.
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Don KonipolBusiness Member

Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes

10mo

Quote from @Justus Gries:

I'm hoping someone here can provide some recommendations or advice as I navigate a situation I'm sure most of you are planning one way or another.

I've inherited a modest real-estate portfolio: 23 doors across 2 multifamily properties, 3 SFH long-term rentals, 2 condo long-term rentals, and 2 single family homes that were personal use that I'd like to transition to short-term rentals. The assets are held directly in a trust, free and clear, and I'm currently finalizing the new trust structures per the will. All the properties are moving into their own LLCs with a holding LLC to manage/operate/grow the portfolio. I've onboarded a property manager to handle the multi-families and SFHs.

I've been using the existing cash flow to handle maintenance, repairs, and capital improvements but need to raise more capital to accelerate the remaining projects this year and get to cash-flow I can support myself on. I'm currently seeking out portfolio DSCR loans or small business loans through local banks in order to tackle the remaining deferred maintenance and capital improvement projects but was wondering if anyone had other recommendations or ideas.

I currently live out of state from the properties and I used the BiggerPockets lender finder but only two vendors were provided and one said they don't do portfolio DSCR loans; I'd like to use the cash-flowing properties to help fund the ones that need to transition from personal to investment. Based on the existing work I've completed, I believe I'll only need a 20% LTV to get the properties fully stabilized. I have a meeting with a bank later this week to see if I can get a line of credit for the holding LLC but they require the business to be at least 2 years old under the same majority ownership during the last two years. I've been doing this for just a little over two years now but am concerned they won't view it that way.

Sell one of the properties and use the proceeds to bring the remaining properties to where you maximize NET income. Then you’ll know exactly what size loan the cash flow will support, and if you even want to use leverage at all. As a very rough rule of thumb for residential properties, operating expenses run 30 -40% of gross income; adding a TRUE depreciation reserve brings expenses to 40 -50%. The 50 - 60% of revenue remaining is what services debt - or provides a significant free cash flow or the owner of the property is debt free.

Addressing the STR issue - STR is as much or more a BUSINESS as it is an investment. Further, the spread of net income of STR over LTR is steadily eroding, making the increased cost, risks, and time commitment for STR less attractive. Further, most LTR make lousy STR.

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Vijay FriedmanBusiness Member

Miami, FL · Member since 2026 · 766 posts · 122 votes

4mo

Quote from @Justus Gries:

I'm hoping someone here can provide some recommendations or advice as I navigate a situation I'm sure most of you are planning one way or another.

I've inherited a modest real-estate portfolio: 23 doors across 2 multifamily properties, 3 SFH long-term rentals, 2 condo long-term rentals, and 2 single family homes that were personal use that I'd like to transition to short-term rentals. The assets are held directly in a trust, free and clear, and I'm currently finalizing the new trust structures per the will. All the properties are moving into their own LLCs with a holding LLC to manage/operate/grow the portfolio. I've onboarded a property manager to handle the multi-families and SFHs.

I've been using the existing cash flow to handle maintenance, repairs, and capital improvements but need to raise more capital to accelerate the remaining projects this year and get to cash-flow I can support myself on. I'm currently seeking out portfolio DSCR loans or small business loans through local banks in order to tackle the remaining deferred maintenance and capital improvement projects but was wondering if anyone had other recommendations or ideas.

I currently live out of state from the properties and I used the BiggerPockets lender finder but only two vendors were provided and one said they don't do portfolio DSCR loans; I'd like to use the cash-flowing properties to help fund the ones that need to transition from personal to investment. Based on the existing work I've completed, I believe I'll only need a 20% LTV to get the properties fully stabilized. I have a meeting with a bank later this week to see if I can get a line of credit for the holding LLC but they require the business to be at least 2 years old under the same majority ownership during the last two years. I've been doing this for just a little over two years now but am concerned they won't view it that way.

@Justus Gries

With 23 doors free and clear, this should be financeable, but the structure is what matters most.

I’d separate the goals first:

cash-out for deferred maintenance/capex
stabilize remaining units
transition some properties to STR
move assets from trust/personal ownership into LLCs
create a cleaner long-term financing structure

For portfolio DSCR, the lender will likely care about property-level rents, taxes, insurance, unit mix, title/vesting, seasoning, and whether they can blanket multiple properties together. Since the assets are currently in a trust/personal names and moving into LLCs, I'd confirm transfer/vesting rules before applying so you don't create a title or seasoning issue.

A business LOC may be harder if the holding company is too new, but the real estate equity itself sounds like the stronger collateral. I'd look at portfolio DSCR, blanket loan, or local bank/portfolio line secured by the rentals.

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Financing recommendations for complicated and new ownership structures

Financing recommendations for complicated and new ownership structures

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