BRRRR refinance with LLC

5 Replies

Good morning BP! It's been a while since I've posted. Been very busy with work and with Real Estate. I've recently run into a snag and looking for some advice on how to get past it.

I bought a house in Denver with my LLC, a hard money loan and a plan to BRRRR it. I'm almost done renovating, will rent it in short order, and I'm ready for the refinance part. My hard money lender has agreed to write the note for 75% of the ARV for a rate and term refinance, and will pay me the difference between the amount I borrowed and the amount of the buyout. I'll be leaving about $40K of my own into the deal.

That was the plan anyways. What I'm finding out now is that Fannie and Freddie won't loan to LLC's? My broker says I should quit claim it to my name, refinance, then quit claim back. Seems like a lot of exposure and opportunity for the bank to call the note due. Furthermore, it seems like a shady way to do business. I know that I'm not the only one in the country doing this and I'd like to do it the 'right' way.

I reached out to Lending One who quoted me 7%. Ok... that's one way to do it. But that kills my cash flow.

So, how is it done? 

Thanks in advance for your replies. 

Cheers!

@Steven Tawresey You've been told correctly that Fannie and Freddie will not lend to a business. Even worse is that if you purchased in a business and then quit-claim it to your personal name, around 98% of Conventional lenders will expect you to re-season for another six months after the quit-claim. I do happen to know of one way around that, but it still involves putting the property in your name. You will still need six months of seasoning from the purchase because you used a hard money loan when you purchased. 

Your only other route is to get a commercial loan. Terms won't be as nice as a Conventional loan but should be better than what Lending One quoted you.

@Steven Tawresey

Yikes. That's why I always tell people to figure out their back-end financing first before taking on a BRRRR. It'll dictate how you structure your upfront loan (vesting, seasoning, etc).

If you're okay with a rate and term refinance (and leaving some money in the deal), you can do that with a conventional loan. It doesn't require any seasoning, but you will have to quit claim it to your name and then do the loan, like your broker said. Do you need it titled in your personal name? You shouldn't be putting it in the same LLC that you flip with (for tax purposes).

If you still want it in an LLC, trying finding smaller commercial banks in your area. They can probably do it somewhere between 4.5% - 6%. I know someone who lends nationally who can do it between 5%-7% as a 5 year ARM, but it sounds like that's still too expensive for you.

Look at small local banks and credit unions. My local CU does cash out re-fi @4.75% over 25 years.

Have you spoken to a portfolio lender like 1stBank?

Originally posted by @Nghi Le :

@Steven Tawresey

Yikes. That's why I always tell people to figure out their back-end financing first before taking on a BRRRR. It'll dictate how you structure your upfront loan (vesting, seasoning, etc).

If you're okay with a rate and term refinance (and leaving some money in the deal), you can do that with a conventional loan. It doesn't require any seasoning, but you will have to quit claim it to your name and then do the loan, like your broker said. Do you need it titled in your personal name? You shouldn't be putting it in the same LLC that you flip with (for tax purposes).

If you still want it in an LLC, trying finding smaller commercial banks in your area. They can probably do it somewhere between 4.5% - 6%. I know someone who lends nationally who can do it between 5%-7% as a 5 year ARM, but it sounds like that's still too expensive for you.

 @Nghi Le:  Thanks for the great info, Can you share who that national lender would be just in case I need a backup? 

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here