LLC can't quite BRRRR

15 Replies

So this may have been discussed many times already, but using an LLC to purchase and rehab to BRRRR doesn't work quite well. I bought my property using an LLC and now it's stabilized and ready to refinance. At first my loan officer said no problem, we'll just deed it over to my name before the refinance to get a conventional 30 year loan at closing. But then I found out that Fannie Mae requires 6 months seasoning of the property after it's changed to my name. And this rule is for all of Texas.

Has anyone else had this happen or familiar with this?  What are some options that may be possible to not have to wait 6 months?

@Greg Wang , your Loan Officer looks to have dropped the ball on this one. 

The moral? If you want best and longest conventional loan terms, don't put Title into an LLC!

Full stop.

Originally posted by @Greg Wang :

So this may have been discussed many times already, but using an LLC to purchase and rehab to BRRRR doesn't work quite well. I bought my property using an LLC and now it's stabilized and ready to refinance. At first my loan officer said no problem, we'll just deed it over to my name before the refinance to get a conventional 30 year loan at closing. But then I found out that Fannie Mae requires 6 months seasoning of the property after it's changed to my name. And this rule is for all of Texas.

Has anyone else had this happen or familiar with this?  What are some options that may be possible to not have to wait 6 months?

 That six month thing actually changed significantly, just two days agoLink 2.

Merry Christmas. :)

Chris Mason, Lender in CA (#1220177) and California (#1220177)
415-846-9211

Wouldn't you normally purchase, rehab, and refi in your name...then switch the deed to your LLC for long term asset protection?

@Chris Mason you are a life saver!  I'll check with my lender.  Merry Christmas indeed!

@Tony Castronovo ; @Greg Wang One question for a newbie here... If I purchased and rehab the property with cash, can I refinance once the property is rented (say 2 or 3 months after purchase) or should I wait for the seasoning period that appears to be 6 months? 

I understand there is the "Delayed Financing" option, but I think there are fees to be paid using this type of strategy.

What I normally do is acquire with HML or private money under my personal name, rehab the property, then refinance within 60-90 days (50 days is my personal best). I do have an LLC but have not moved my properties to it (I know...shame on me). When flipping I buy with my LLC, but for buy & hold it is under my name. My understanding is that lenders require a personal guarantor. You can then transfer the deed to your LLC. You have the risk of the loan being called due given the "due on sale" clause, but I have heard most lenders do not exercise that option if they have a good mortgagee.

I do not have seasoning requirements for the refi as I am not doing a "cash out". It you are refinancing to replace a cash purchase or trying to pull too much money out of your equity then you will need seasoning. Because of this strategy, I am never able to achieve a true BRRRR. But I can usually cover closing costs and maybe some rehab costs. For example, I just closed on my latest refi....purchased at $108,500 with a private money loan (100% financed), paid $25,500 out of my pocket for the rehab and refinanced with a conventional loan at $115,500. I left the closing table with money coming back to me. The trick is to drive the ARV. I got this property appraised at $167,000

Now, if you are doing the math....something to consider is that at 75% LTV I could have gotten a refi loan north of $125,000 ($167,000 X 75%). That would have paid off my original loan and leave me with about $17,000....which would have covered much more of my out-of-pocket costs (better BRRRR). But because of the cash-out rules I would need to have some seasoning. Since my strategy has been to exit the private/hard money quickly that doesn't work. I might try to find a longer-term acquisition loan to bridge the seasoning requirements. There is several more months of higher interest....but could be worth it to replenish the cash reserves. Hmmmm.....

in most areas there's a class of lenders that will lend 30-year financing with title held an LLC today they're called a misnomer called portfolio lenders. these lenders have private sources of money not Fanny so they can decide what their lending criteria are. look up Angel Oak Prime Bridge Lima one Visio lending at least these three guys offer 30-year financing at higher interest rate higher points but you don't have to move your deed into your personal name to get there to your financing. the moral of the story is guru's say one thing the practicality often turns out to be different. I recommend you buy, rehab and rent in your personal name after you get through your financing then go to an attorney and just move the deed into an LLC, $100 or so, after you get Fanny financing. I've never heard of a bank complaining of your moving into an LLC Where You Are at least one of the members.
Originally posted by @Curt Smith :
in most areas there's a class of lenders that will lend 30-year financing with title held an LLC today they're called a misnomer called portfolio lenders. these lenders have private sources of money not Fanny so they can decide what their lending criteria are.

look up Angel Oak Prime Bridge

Lima one

Visio lending

at least these three guys offer 30-year financing at higher interest rate higher points but you don't have to move your deed into your personal name to get there to your financing.

the moral of the story is guru's say one thing the practicality often turns out to be different.

I recommend you buy, rehab and rent in your personal name after you get through your financing then go to an attorney and just move the deed into an LLC, $100 or so, after you get Fanny financing. I've never heard of a bank complaining of your moving into an LLC Where You Are at least one of the members.

I've seen some of those rate sheets, and you've gotta be getting pretty great deals on property 'sticker prices' if you're still able to solidly cashflow them with that financing at more than about 60% LTV. Good on ya.

Chris Mason, Lender in CA (#1220177) and California (#1220177)
415-846-9211

I recently made this same mistake on my first purchase. 

I bought a property for cash with my LLC, and then I was surprised that I couldn't get a 30-year loan to pay for the rehab. I ended up with a 15-year commercial loan at 5.5%.

I bought the house at such a discount that it wasn't an expensive mistake. It's just one of those learning things. I'll probably refinance sooner or later. 

So what @Chris Mason said is true. My lender said the new Fannie rules allow the time the property was held by the LLC to count toward the 6 months seasoning for the 30 year loan. The rates are 2 basis points higher now though, but I don't have to wait 6 months! So I am back in the refinance process and need to have all my financials go through underwriting again.

@David Alzate to answer your question on waiting for the seasoning or not depends on your exit strategy numbers.  For me I need the Fannie 30 yr loan with low interest to make my numbers work and pay back my investors and cash flow on the property with all expenses accounted for.

Two basis points? You mean .02 percent of the rate. So instead of 4.5, you're paying 4.52? 

Or did you mean to say something else? If not, 2 basis points is basically no difference in the rate so thats a good thing.

Good topic, many get confused and many implement it differently. There is no one standard process for every one due the everyone situation changes.

FNME did relax recently some seasoning guidelines, here is the good one which helped Chris and help many if you are stuck in LLC.

If the property was owned prior to closing by a limited liability corporation (LLC) that is majority-owned or controlled by the borrower(s), the time it was held by the LLC may be counted towards meeting the borrower’s six month ownership requirement.

FNME also plan to fund 5-10 year low interest loans for investors starting this year so small investors don't have to look for commercial loans.. Read this article for info,

http://realtormag.realtor.org/daily-news/2018/01/0...

As per seasoning, there is 6 month seasoning before you can refinance your property unless you buy all cash, you can do Delayed Financing within one month of closing. Also if you are flipping, this 6 month seasoning will also hit you for FHA loans. Keep it all mind and plan accordingly.

From  my perspective, as @Tony Castronovo suggested, I tried to buy cash and refinance after renting out and do the title transfer which is clean and simple. I just bought property under LLC which I am flipping and getting the money and repeat it. So if you want to use conventional financing, keeping in your name is always the best case until it's financed.

Vijaianand Thirunageswaram, Real Estate Agent in TX (#612107)
281-912-3112

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