Newb Financing with home equity

3 Replies

Greetings BP members,

I'm a newbie to the community and want to gather some opinions on my financing strategy.

I currently have 2 properties, my personal home and a rental townhouse. Both are paid off.

I'm now in a position that I have some funds to invest in another property. I'm looking into small multi-family properties. There is a potential 4-plex available near me.

I'll need to borrow around $150k to acquire this property. I have great credit and enough to put 20% down, so a traditional loan should not be a problem. However, I would like to own the property in an LLC, so I'm considering trying to refinance my personal home or use an HELOC and pull the $150k from there. Then I should be able to purchase the property with those funds and still be able to hold the new rental in an LLC.

With 2 properties and a 3rd in consideration; I think it is important to try and build in some asset protection. I'm curious to know if I am likely to run into roadblocks or disadvantages with this strategy.

Thanks for any help!

- Ben

Welcome to BP @Ben E. . You are currently in a great position owning 2 free and clear properties, well done! For the 3rd property, I agree that a HELOC is the way to go but Im not sure about the rest.

Doing what you proposed, meaning using the HELOC proceeds to buy outright the duplex into an LLC is not a bad idea. But if you are looking for asset protection, then how about the property which you will collateralized to obtain the HELOC? that one will not be in an LLC. In other words, why is it important to you to put the next property in an LLC while the previous 2 are not? If you are strictly looking for asset protection, then it's time to talk to a professional who can guide you. If on the other hand your main concern is liability protection then do not forget to purchase an insurance umbrella policy! And off course you can do both the llc and the umbrella policy!

You can potentially buy the property with 20% down and a mortgage then transfer the property to your llc after the fact. There are tons of discussions on the site regarding the potential pitfalls of the due on sale clause if you go that route. I do not think that is needed in your case but it's always good to know what's available.

I would go the HELOC route and put the new property in an llc as you are looking to do. Then repair, rent, refinance and repeat to acquire your forth property ( that is the BRRR strategy as described by @Brandon Turner ). Happy investing!

Hi Victor,

I will definitely have a good insurance policy. I am planning to put my 1st rental property into an LLC as well. I am hesitant to borrow against my primary home, but it may be the best strategy. I thought about putting my personal home into an entity, but then realized I would loose the Personal Property Exemption (PPE) that would effect the property taxes I pay. On a paid off personal home, that seems to be the only downfall of using an entity.

Another issue on my personal home is that.. since it is paid off, I'm concerned that I'm a more appealing target in the event of a lawsuit. Having a mortgage on it may be beneficial in that a plaintiffs attorney may see it as a less attractive source of funds.

I'm hesitant to do a transfer to LLC with a mortgage on the rental property. I don't think a bank would recall a performing loan at this time, but if interest rates do eventually rise... it would make sense that a bank considers recalling loans that are at such low rates.

I've been self-employed for 12 years and have formed and few entities... including running an s-corp for 8 years. So actually forming the LLCs is not something I see as complicated. It's pretty easy.. just make sure you understand the benefits of each type, I'm surprised people pay others for it.

I think it will work out fine either way, I just wanted to bounce my ideas off others.

Thanks for the detailed response!

- Ben

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