HELOC on LLC property Experience?

3 Replies

Good evening BP family,

So, we are currently in the process of purchasing our third property. Our approach on the third property is BRRRR strategy using a HELOC from a current rental property that is paid in full. Now, we are an LLC business and the property is under the LLC series.

My question to you guys is, have any of you guys done this before? What tips/advice would you give?

We are finding out that a lot of banks do not work with LLC rental properties and have heard that working with local credit unions might be our best approach.

We are in the Chicagoland area. Any piece of advice/tips would be greatly appreciated.

You're not the first investor to have difficulty securing agreeable financing for an LLC. Getting financing for a new LLC may prove nearly impossible--particularly if there is no equity in the company. Financing terms for LLCs, even those with established equity, are typically far more costly than getting financing in your own name. But there is a way around this problem.

The first step is to get your financing in your personal name then use a land trust to execute any transfers into your LLC or Series LLC asset-holding company. Land trusts are viewed as estate planning tools [or an Inter Vivos Trust] and will not trigger the due-on-sale clause thanks to the St. Germain Act. They simply don’t set off the same “alarm bells” at the bank that transfers to LLCs do. This has to do with the fact that land trusts are private documents, while most states require LLC membership to be reported on the public record with the Secretary of state. You can read more about this method of using land trusts to avoid due-on-sale issues from my previous BP article on the subject. I have used this method personally and have seen many other investors do the same. None have even gotten a letter from the bank, to date. Barring a dramatic change in law, I would expect this method to help real estate investors avoid the “LLC lending problem” for the foreseeable future. Even if my entire analysis were wrong (it’s not, I’m just playing out the worst-case-scenario for the excessively cautious), the very worst thing that could happen is that the property would revert back to your name. The bank won’t force you to pay the entire loan in full without some time to “remedy” the situation. But even that is a worst-case scenario that I’ve literally never seen play out. Nor do I expect to. Land trusts have many asset protection benefits and can be a powerful addition to your asset protection plan anyway--yet this use is still not as widely known as it should be.

I know many investors in the Chicago area who use this method, so that wouldn't be an issue.

@Samuel Cardenas I have an LOC on three properties in an LLC. I use the LOC to pay cash for a property and rehab costs. For the properties I keep, I refinance with the same bank that issued the LOC. I developed a relationship with a community bank that has other customers like me and understands what we are doing. It probably helped that I've been an investor for many years prior to meeting with them. Where are you located?

Originally posted by @Samuel Cardenas :

Good evening BP family,

My question to you guys is, have any of you guys done this before? What tips/advice would you give?

You may want to look at a lender like Renovo Financial in the Chicago area. While they are primarily known for providing loans to flippers they also have permanent financing products for portfolios. (Which is what you're building) Because of the licensing requirments, they can only lend to an LLC, but the loans still come with a personal guarantee.