Cash out refinance on rental bought in cash

8 Replies | Kansas City, Missouri

Folks I am trying to find a lender in KC that will do a cash out refi on a rental we purchased all cash earlier this year. We used all cash to be competitive in an aggressive market here in KC. My intent was to use my cash to make the deal then put a mortgage on the prop to put my cash reserves back. Also I bought the prop thru a LLC we created, and finding some banks won't do a cash out refi thru a LLC. Anyone have thought there? Thanks for your help!


Joni S. no rehab required, it was move in ready, in fact already rented.

Ryan, well I seem to be coming up empty, any suggestions are well come.

NOTE: I created a LLC and bought/title prop thru LLC. Mortgage companies I am talking to say Fannie Mae and Freddie, won't lend to a entity(i.e. LLC), must be in my name. This has caught me of guard and totally unexpected. Have you heard of this? Any thoughts?

Scott,

For Fannie/Freddie, they're going to want to see your income to qualify the loan. Your llc I'm assuming hasn't had any income so there's the rub. 

I've heard commercial lenders will lend on the investment alone but this won't be a traditional home mortgage and you'd be looking at higher rates/shorter amortization possibly.

There's also the crowd that will say to deed the property back to your own name, finance it, and then deed the property back to your LLC. This would potentially trigger the alienation/due on sale clause of your mortgage but there's a long history of most banks letting this go as long as the mortgage stays paid to date. The risk there though is the bank does legally have the right to call your note if you transfer title. I honestly don't follow interest rates that well but if they're stagnant or decreasing, a bank has little incentive to call a performing note. If rates start rising, it might be more appealing for a bank to enforce that clause. There are pros/cons to this, I haven't done it yet but am considering it.

Hope this helps,

Cameron

Cameron,

You are spot on. I am being told by one lender that they have many investors that do exactly the scenario about deeding back and forth. That is certainly easy enough. my concern would be asset protection afforded to me by do the LLC in the first place. If I deed the prop back into my name, get the loan, then deed it back to the LLC. I don't see how I retain LLC personal asset protection, given the name on the loan is still mine and not the LLC. Thoughts?

Scott,

I had that exact concern, and there is a podcast I listen to called the Refresh your Wealth Podcast that is hosted by two tax attorneys, one of whom is also a CPA. Occasionally they will do a live-caller/email question and answer show and so I submitted this question to them and it was answered on their June 19, 2019 open forum podcast. You can find the show on itunes if you want to listen, it's the first question they answer roughly 4 minutes into the show. Unrelated, but it is a good podcast.

Anyway, I'm not a lawyer so seek your own advice etc. but their suggestion was that if everything else is under the llc, (lease, listings, bills, payments, etc.) that just having the loan under your personal name wouldn't be enough to lose the asset protection afforded by the llc. It seems that under that scenario, the loan would be viewed more as a co-signer and less as intermingling. 

Cameron