We currently have 5 properties with 9 doors. Three of them have mortgages that are in my name. We have lines of credit on 3 of the 5 and I'm trying to find someone to give us lines on the other 2. We also have been trying to find a lender who will refinance the 3 notes into our LLC and at the same time give us a substantial Business Line of Credit collateralized by our properties for something in the neighborhood of $500k. Between COVID and the way the rates and home values are right now I can't seem to find anyone to do either. As I continue to look I was wondering what others are doing. Are you holding your properties in your personal name or in an LLC? What are the legal and tax pros and cons? Our LLC is a 2 person partnership, not a sole owner.
Thanks in advance for your thoughts
@Jim Kalish An LLC is a pass-through entity, so the profits and losses will carry into your personal returns. You do receive some liability protection with an LLC if it is set up correctly. You will need to keep up on the registration and fees for the LLC, which is not difficult and too costly, but just need to stay on top of it.
Best of luck!
Morning AJ, thanks for the reply. We've had LLCs for our various companies for several years now. SO we have that piece of it pretty much under control. I was asking folks how they hold their properties, in an LLC or in their name. When we started out we didn't know any better and and we didn't have any track record as a company so I bought the houses in my name. Now that we have some additional capital and since I'm retired additional time we want to grow the business. But first we want to get all of our ducks in a row. I've been trying to find a lender who will refinance all 3 outstanding notes into our LLC and at the same time give us a substantial line of credit collateralized by the properties. I thought I was all set with US Bank but then the underwriters pulled a switch and dropped the amount of the line to a point that we couldn't accept it. So now I'm looking for a lender who will give me a line on the last 2 properties we have that don't currently have a line against them. If you don't mind sharing how do you hold your properties, in an LLC or your name? And what lenders do you use?
I think your question is how to structure best for financing purposes and less about tax and asset protection. I think some people do loans in their personal name for 1-4 unit due to the cheap long term fixed debt available. Typically 70% loan to value. Some later move those to LLCs for asset protection. For new LLCs loans you will need a commercial loan most likely with recourse meaning you are on the hook personally as well as the LLC. Look for a local bank that does portfolio loans like a People bank, etc. They can structure something for you. What loan to value did you seek before from the other bank? Why a line vs. a fixed rate note?
Hi @Christian Stoecklein . Thanks for the response. My goals are 2 fold. It is for asset protection. We are already running the income and costs through the LLC. But I also want to be sure that when I pass there are no are issues associated with who owns the properties. My son and I are partners and he will inherit the properties if they are still in my name. But then that could trigger the due on transfer clause on the ones that have a mortgage. I know I can put him on title now and add him to the notes but then that would impact how many other notes he can hold in his name if we don't get them into the LLC.
As for why a line, I want to both get a term note on the currently mortgaged properties and at the same time get a line of credit. I have that now for the homes in my name but I have a couple more I want to do that on but no one is giving out HELOCs right now. And in the market I'm in, Charlotte, NC, cash is king. Investment properties are selling in a couple of days and closing in 10 days. Getting a conventional or for that matter private money loan is to slow and if someone is comparing an offer of cash with an offer that has a loan attached to it they are going for the cash offers.
Thanks for taking the time to share your thoughts.
You have the 3 in the titled name of the multi-member LLC but the mortgages for those in your personal name only. You will want to talk to a real estate attorney to help you.
For the two unencumbered you could get fixed rate debt and just hold the cash and fund yourself. So a commercial cash out refi. That might be easier than getting a note and a line. Ask for a reasonable amount of leverage (70% LTV) and a fixed rate. Did you get these two appraised? You should talk to a tax accountant on this also.
Hi @Christian Stoecklein Thanks for the advice