I currently have a few SFR's and MultiFamilies and have them all on commercial loans from 5-6% interest / 20 year / adjust every 5 years.
I have contacted my lender and a few others that are local and am having a hard time getting a straight answer to some questions. I have always done commercial, in-house, 20 year loans with my current banker because it is super flexible and he is awesome BUT with rising interest rates and my adjustable loans continuing to come due I am thinking about getting 30 year fixed loans BUT each lender I have contacted has told me that I cannot get this done with my LLC on the loan?? Is this true?? Do I have to put my personal name on a 30 year fixed?? If so, do you all do this??
Any and all help, direction, or insight in what you all are doing to mitigate risk and take advantage of fixed low-interest rates would be great! Thanks
Nearly all 30 yr fixed loans (on SFR, at least) are agency backed loans, so Fannie Mae, Freddie Mac, etc. These agencies have specific directives as government backed entities, one of which is to promote home ownership (as opposed to commercial lending). This is why an LLC cannot be the borrower on these loans and why you are getting those answers. You would have to qualify and close personally, then transfer title to your entity.
There are a few non financial institution outlets offering a 30 yr fixed on SFR. Citadel is one that comes to mind.
So when I hear of other investors, on podcasts, forums, etc getting 30 year fixed rates...if I understand correctly...they are qualifying for the government backed loan, closing, then transferring title to their LLC? That seems like a pretty good deal and something I should definitely consider on some of my loans. Are you currently doing this? Is this a good deal considering I want to hold most of my properties forever?
I would say the majority of the time, on 1-4 family properties, this is the case.
Generally speaking, if you don't mind the slightly higher interest rate, relative to a comparable 15 yr product, this is the most advantageous financing option in this rate environment. Keep in mind this comes with caveats and strategies like BRRRRR can be difficult to pull off without properly navigation.
Hey Josh! You can get 30 yr fixed in residential mortgages and like @Scott England said, those need to be closed in the name of an individual....or a Trust with an individual as the beneficiary. The only ways that I know of to do what you are wanting to do is to either:
1) Close in your personal name and then quick claim deed the property to your LLC. When you do this most mortgages have a clause that will allow them to call the note at this time. I know a lot of investors including myself that do this and have never had a note called.
2) Close in the name of a trust. You are technically allowed to have a trust as the deeded entity for estate planning purposes. This is a little more complicated that other closing, and will require you have valid trust documentation that lists you personally as the beneficiary. At some later date you can change the beneficiary to your LLC, and there really shouldn't be any impact of this. The trust will hold title, and title insurance, although the bank will still apply the note to your personal name.
Does anyone have anything else to add to this list, or corrections to what I've said?
Agree with @Scott England and @Bryce Callies . When we were acquiring our first SFRs in Okc area, we wanted the benefits of long term financing with the rate locked in but did not want to give up the LLC protection. A lot of investors transfer to the LLC (quick claim deed like Bryce noted) or at a later date after closing, and even though the Due on Sale Clause executed in this scenario is rare, we had been hearing more examples of this happening. And with interest rates continuing to climb, there could be more incentive for lenders to use this option.
We ended up just talking to our prospective lenders about our intention to transfer to the LLC after closing and most confirmed there would be no issue and their investors do it all the time. Scott's right about navigating BRRR. It's important to talk to your refinance lender prior to the whole process to make sure you are offers and how you take title (in cash or however finance initially) is consistent.
Thanks for all the helpful info. I will be talking to my lender tomorrow about these options. I have started to implement the BRRRR strategy. The way I currently am financing these BRRRR deals are through my line of credit and then refinancing to the 5-6% interest, 20 year, 5 year adjustable loan after the appraisal. You all are saying there might be some hiccups if I want to take this refinance to a 30 year fixed? I guess ill ask my lender about those options as well.
Again - thanks so much for the information and mostly the clarification on something I will need to take care of soon on a few properties! Best of luck to you guys and if you ever get anything up in the Guthrie or Stillwater areas hit me up and we can grab coffee or something!
@Josh Chappell this has been a good read, as creative & optimized financing options fascinate the bejesus outta me.
Let me ask, is part of the “why” to this question wanting to insure good cashflow margins?
Or in other words are you not getting a good spread on the 20years?
I also have a great relationship with a lender I love to pieces, and I don’t mind the interest rates as much as the fact that I’m limited to 15years.
I guess, when I’m 50 I’ll love having tenants pay these off and so I justify my small margins that way. But I want what we are all after, early retirement & greater financial freedom. So margins & positive cashflow optimization are something I ponder often.
Ps I really like Guthrie as an investment area. Haven’t been there in a year but love some realtors there and if I get a chance to visit I’d love to pick your brain about that area too.
Great information here, everyone! @Seth Marcus , you bring up an interesting point with lenders being more likely to act on the Due on Sale clause with interest rates rising. I guess transparency with the lender is the best approach, like you said. Good stuff!
To get 30 year fixed at or around 5.5 percent (about where it’s at currently) you need to get a Fannie/Freddie loan and close in your name. Then deed it to an llc. Loan stays in your name.
If you can make the higher rates work you can do 30 year fixed at 7-7.5 percent interest from some of those national portfolio lenders like corvest finance.
Thanks for all the great insight. Currently this question is based solely on what I foresee coming up and not something I have gone through or are currently going through. I have purchased 7 properties within the last two years and all are going to adjust around the same year. With interest rates on the up-tick, I don't want to be in a position that I am not prepared for or one that I have not wrapped my head around.
@Nate Sanow My "why" to this question is just what you mentioned. I don't want to be in a position where my cash flow takes a huge hit simply because I haven't planned. I am currently working full-time in healthcare and am pursuing to cover all my families living expenses with our rental portfolio (lean FI) and that timeline would be pushed back if this scenario where to take place.
doesn't all this defeat the entire purpose of a LLC.... from a protection standpoint?
@Matt K. It can in theory yes if you don’t get the go ahead from the lender first.
If you get the go ahead first and then do it post closing there shouldn’t really be an issue. It’s really just a personal preference.
If you owned a lot of properties and they’re all in your name and people mail you stuff because they can easily find your address, I could see that getting old
I think that @Caleb Heimsoth hit it on the head with getting the go ahead from the lender FIRST. I have not done this yet but the first thing I am going to do is get lunch with my lender. Relationship building with key team members for me (Insurance guy, lender, contractor) has made my life 100% better. People like doing business with people they know, like and trust and this can only be done through relationships.
I'll follow up with everyone once I chat with my lender and see what he says about it.
You can get a 30 year fixed on an investment property closed in an llc for around 8% interest at 75% max LTV
Anyone in this thread have time to run numbers on a deal I am
UC in OK. 5 residential units. Would like to know more if closing and transferring into LLC or Trust is the best option. pros/cons and timeline to set things up. I am sure the trust costs more and takes longer to set up.
Also any good lender recommendations for OK. thank you all.