How to tap into equity on a property held by an LLC

Question

I have a single family rental that I am trying to do the brrrr strategy with. I have the property under an LLC which seems to have complicated the Refinance part to pull out some of my equity so I can do the repeat part. To keep this property with a possitive cash flow I after pulling out the equity I would need to have a 30 yr mortgage but im being told you can't do that with an LLC. Any Ideas on the best way to move forward?

Scott Smith · Answer

I would generally move the property into your own name to refinance, then move the property into a land trust with the LLC as the beneficiary.

There are two types of transfers that can potentially raise an alarm about the due on sale clause: (1) the transfer to an LLC and (2) the transfer to a trust. A transfer to an LLC will trigger the clause and should therefore be avoided even though banks are hesitant to ever foreclose as long as the note is being paid. Even with the note being paid, the banks will still send threatening letters. This issue can be avoided completely by transferring the property into a land trust.

While a transfer to an LLC will cause alarms at the bank and prompt them to send you a letter, a transfer to a trust will not. A transfer to a trust is exempt from due on sale violations since banks will view transfers to a trust as an estate planning tool. You should not even receive a letter from the bank.

This isn't legal advice and does not create a client-attorney relationship. Just sharing insight from my personal experiences as a real estate investor.

Kanu Patel · Answer

Is your property paid off or have mortgage with LLC?

Ryan Severance · Answer

@Mark Davis Depending on your specific tax and current loan situation, I generally make recommendations to my clients that they let me transfer the property into their name individually for refinance purposes, as @Christian Nachtrieb described.

Again, I don't know your tax situation, but this is something I commonly do for my clients who are looking to refi and pull equity out of their properties.

Feel free to PM me to discuss if you like.

Christian Nachtrieb · Answer

@Mark Davis You might be able to just pay your real estate lawyer to transfer the title to your personal name out of the LLC, and then perform the financing leg of your operation. It's a few hundred bucks (give or take) depending on who you go to.

Prince Dhillon · Answer

@Mark Davis, as @Upen Patel mentioned you cannot get conventional financing with LLC. You can find some small local banks they will refinance your property. Generally small banks will lend you 70% of the Property's appraised value and will amortize the loan anywhere from 15 years to 25 years, it depends on bank to bank. Their interest rates are little higher than the conventional loan interest rates.

Upen Patel · Answer

Hey! @Mark Davis You can't get conventional Fannie/Freddie loans with a title to LLC. So that limits you to portfolio/commercial loans. Most of these don't offer you 30 yr fixed. What you are looking for a 30 yr fixed residential portfolio loan, which do exist but very very few lenders offer it. Be ready to pay a bit higher rate for that.

Good luck.