Hi, I purchased my first rental property in cash in January this year (In Texas), which I then placed in a LLC. I now have a renter with a years lease. I'd like to pull the equity out of the property to finance a 2nd rental property. I'm running into hurdles as conventional loans will not loan to a LLC and I've spoken to some smaller banks in Texas, but they are offering higher rates. Any guidance on what others have done when you have investment properties in LLC's and getting financing?
Lender · Denver, CO · Member since 2017 · 348 posts · 143 votes
5y
So most will not allow the loan to be in the name of the LLC. You can get around this by putting the loan into your name and refinancing it and then transferring title to your LLC after closing. The 2 things you will want to look out for here are:
1) Lenders may require you to wait 6 months from the time that the title is transferred into your personal name before you can refinance.
This would cause delays in your refinance as well as in you going out and getting another property.
2) Read your loan documents. Lenders may have something in them stating that if title changes they can call the balance due in full. So make sure you know what that states so you don't run into that issue.
If those don't work or you want to keep it in the name of your LLC than a commercial or DSCR loan would be doable but the rates will be slightly higher.
@Lesleigh S.Depends on your current loan situation, but one of the more common ways to do this is to transfer the property into your personal name if you plan to refinance. Let me know if you have any more questions, happy to help!
As this was a cash purchase I do not have a existing loan. So if I pull the property out of the LLC, get financing and then transfer it back into the LLC, I've been warned that "Due on Sale Clause" may be a risk.
Sounds like that's the path I'll have to go down anyway, but I will just need to ensure the new loan does not have a DOS clause.
Lender · Denver, CO · Member since 2017 · 348 posts · 143 votes
5y
So most will not allow the loan to be in the name of the LLC. You can get around this by putting the loan into your name and refinancing it and then transferring title to your LLC after closing. The 2 things you will want to look out for here are:
1) Lenders may require you to wait 6 months from the time that the title is transferred into your personal name before you can refinance.
This would cause delays in your refinance as well as in you going out and getting another property.
2) Read your loan documents. Lenders may have something in them stating that if title changes they can call the balance due in full. So make sure you know what that states so you don't run into that issue.
If those don't work or you want to keep it in the name of your LLC than a commercial or DSCR loan would be doable but the rates will be slightly higher.
And you can check on out one of my older posts where I go into this in greater length:
https://www.biggerpockets.com/... In my layman's opinion, don't go the conforming residential loan route. Its just bad... You need to use a commercial lender is all. That's part of the costs/overhead of using a legal entity such as a LLC to invest.