Help With Owner Financing and Refinancing After Seasoning

12 Replies

So I am looking to purchase my first investment property. I think I'm going to owner finance it for a year or 6 months first so I can buy it under my LLC instead of my personal name. I'm assuming after seasoning for 6 months or a year, I can apply for traditional financing under my LLC and make the purchase.

1. The LLC has no credit or anything, so when refinancing, how will the lender use any data to determine if i'm eligible for a loan on the property?

2. The property is already rented and I'm probably going to give the owner 10% down and have him hold a note for a year with a balloon payment. Do I have to put another down payment down to refinance? I'm trying to figure this out where I use as little of my own money as possible. I want to use the equity in this property to buy another property later on but don't want to come out of pocket for 10% to him then another 20% when I refinance since it's already rented.

3. Any tips on how to work out the owner financing?

4. Should I just buy it under my name instead and not do owner financing or would there be a benefit since he's willing to do so?

Any feedback from lenders/investors would be greatly appreciated!!! 

@Jonathan Edmund to get the best terms you will wan't to refinance in your personal name. If the property is currently in a LLC you switch it over to your personal name at the closing of your refinance. What you do after closing with the property is up to you.

Originally posted by @Melvin List :

@Jonathan Edmund to get the best terms you will wan't to refinance in your personal name. If the property is currently in a LLC you switch it over to your personal name at the closing of your refinance. What you do after closing with the property is up to you.

Hey Melvin. The property is not owned by an LLC currently. A guy owns it and rents it out and I actually manage it. I'd be buying it from him and then refinancing. I have no problem buying it in my name then moving it to the LLC later on. Would there be any benefit to owner financing it before financing through a bank?

@Jonathan Edmund I am not sure what the owners terms are but I would assume they will not be better than going with a conventional mortgage.

@Jonathan Edmund Agreed with Melvin's post above, I wouldn't bother with the owner financing unless you're getting some spectacular terms. Even with the 10% down, the re-financing would probably be 80% LTV max, so you'd have to bring 10% to the closing table for the refinance. Plus you'll have two sets of closing costs, once for the purchase and once for the refi.

I would also never do a 1 year balloon, too short.

Finally remember with the LLC you can't do conventional financing, only commercial with higher rates and shorter terms. Extremely likely it would require a personal guarantee, so the lender will look at your financials.

No advantage to SF over a bank loan? Have you ever applied for a mortgage before?  The process is painful and expensive and slow.  Oh yeah, if you're buying below market value they don't care.

I've self closed 7 SF properties while having a nice coffee by the fire with the sellers at my bank. No 2 years tax returns, months of statements, $700 appraisals, $1200 lenders title insurance, large origination fees or waiting 45 days with fingers crossed.

The other advantage is refinancing is much easier on you and the property and if you bought with SF below market value, the value will come into play after 6 months.  But I digress.  Getting a bank loan is better...

Anyway, little houses with debt do not belong in LLCs for me. I put my commercial assets in them, but too hard to get that awesome long term financing available to natural persons when you over-sophisticate them.

@Steve Vaughan Thanks for the input Steve! I know the owner and I know the unit is worth $80,000 and I can get it for $65-70k for sure. I manage the property already and have a great tenant in there at $1,000 a month. So I feel like the risk is low. The owner would literally charge me a super low interest rate and hold the note probably no longer than a year. I'd give him like 5k or so down. I'm ok not buying under an LLC especially since it's my first property.

So the terms of this deal would be solid and then I could just refinance after a year when the property is probably worth $86-90k and be in good shape right? This would be my first rental property so excuse my lack of knowledge.

Originally posted by @Jonathan Edmund :

@Steve Vaughan Thanks for the input Steve! I know the owner and I know the unit is worth $80,000 and I can get it for $65-70k for sure. I manage the property already and have a great tenant in there at $1,000 a month. So I feel like the risk is low. The owner would literally charge me a super low interest rate and hold the note probably no longer than a year. I'd give him like 5k or so down. I'm ok not buying under an LLC especially since it's my first property.

So the terms of this deal would be solid and then I could just refinance after a year when the property is probably worth $86-90k and be in good shape right? This would be my first rental property so excuse my lack of knowledge.

Yep, you'll be in good shape provided your LTV isn't above 75-80%. I'd start looking before a year though; probably 9 months out to leave 45-60 days for closing.

Make sure you get a note and deed of trust or mortgage from your seller. I don't do land contracts or contracts for deed. Get ownership.

Originally posted by @Tiffany Chandler :

@Steve Vaughan What's a note?

 Promissory Note. Your promise to pay. The Deed of Trust or Mortgage gives them the power of sale if you don't!

@Jonathan Edmund - if you're going to do seller financing, make sure that you are on the title.  Otherwise there will be no seasoning and when you go to get a loan the lender will treat it as a purchase, not a refi.  And then it doesn't matter what the appraised value is.  The lender will lend off the purchase price and you'll need additional down money.

Originally posted by @Ryan O'Mara :

@Jonathan Edmund - if you're going to do seller financing, make sure that you are on the title.  Otherwise there will be no seasoning and when you go to get a loan the lender will treat it as a purchase, not a refi.  And then it doesn't matter what the appraised value is.  The lender will lend off the purchase price and you'll need additional down money.

 Thanks for this! This is the main thing I wanted to find out. I knew if I didn't do it correctly that would happen just needed to hear it from someone.

Thanks! 

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