LLC Refinance lenders in Milwaukee - Stuck on this step

[Conrad Scoville]

Alright Group need some help.

I own several properties now in the city. My last purchase I used a hard money lender, did my rehab, got it rented, all set to go except....I can't refi...I am not sure what my move is now, my hard money loan is about to get extended but the payments are killing me since I cant get out of it. The kicker is I have deals and investors lined up to go for new properties just waiting but for the life of me I cant get the financing to work out. I used to think finding the investors or the money was the hard part but that is honestly the easy part, finding lenders is a thorn in my side that is just getting twisted. I have gone to several banks, credit unions, my go-to mortgage broker but all I am finding is that this BRRRR strategy seems like total BS!! Really frustrated at this point, but I would love some lenders that work with LLC's. I have summited with lenders that partner with hard money and one said that I need year leases, but almost all the leases that I have run into in the city are month to month! I have 4 properties and I have one house on a year lease. I have leases in place for all my properties, I have renters in place, one who has been in the property for 30 years, yet I can't find the lenders. I want to go through my LLC because I set everything up that way very methodically, but all the sudden that seems like its harder too, they want more personal information or they are suggesting hybrid loans instead of ones that are just with the LLC, seems like it should be simple, but I am finding this step more complicated than anyone ever says it is. This is the last piece of the puzzle, I got bomber real estate agents, I got all the contractors, I have hard money ready to go on new properties, I have investors ready with money, I have my LLC, I got the deals, if I get my lender issues solved I can scale quickly and get my plane off the runway. Yet here I am stuck, I feel like I have done every step right, every thing is in place yet all I am finding is lenders are getting pickier and pickier, like it used to be get it rented, now its get it rented with a year lease I really need some help on this one. I have been trying to get through this on my own and learn from the process, but at this stage of the game I need some guidance, any specific lenders or advice would be amazing. I would even take stories or encouragement at this point!

Thanks in Advance!

[Melanie Eden]

Hi Conrad,  you have some options. 

1. quit claim the properties to your personal name and refy with a lender that will do a 30 year fixed.  then quit claim the properties back to the llc at the closing table with title company.

2. work with waterstone bank, sunset bank, or peoples bank and refy on a commercial basis and avoid the quit claim.  the sad deal is rates are higher and amoritization schedule shorter on commercial loans.  ARMS are the norm, with 20 year am.

i can provide contact numbers if you wish 

[Henry Clark]

1.  Brrrr and you mention investors? Why both?

2.  Investors and you mention bankers?. Why both?  

3.  Establish a relationship with just one finance company. Otherwise you will have collateral scattered all over you can’t use. Also view them as a team member. Don’t go shopping. 

4.  Ask them their loan cap rate.  Make sure they have the loan capacity to grow with you

5.  On a piece of paper or a spreadsheet put your properties down and add dummy projects to reflect your growth. At some point you run out of collateral and either have to sit tight while you build equity or find a new finance model. Investors, syndication, etc. 

Realize you want the money and the answer, but if you just take another loan out with someone your adding to the issue. Not solving your finance problem.  Do 5 above then bring it back to this post. 

[Henry Clark]

Also your LLC and your personal financials will always be requested. They will want a personal guarantee.

Finance companies want:

A.  Your collateral

B. The property’s value 

C.  Personal assets or guarantee. 
They want as much financial backing as they can get.  

[Conrad Scoville]

 @Melanie Eden Thanks for your reply. I have done the quit claim before and I was actually working on that right now, I have a mortgage broker who I have worked with for several properties, including a past property and my personal home, we typically have everything pretty dialed. Right now he is trying to refinance out of that loan and I would quit claim it back in. Couple issues, as I understand it you can only have 10 properties financed under your personal name, this would put me at 3, plus I just went through a hybrid loan with equitable with a partner to purchase two more properties so that is 5. I have room but I am trying to get everything into my LLC so I can get a way from this, but clearly I am having trouble. Second thing is he's says he's running into a debt to income issue, which is also why I am trying to get things under the LLC and away from my personal finances. Even though everything is rented and cash flowing, refinancing my personal property and buying the others were no issue but this one seems to be an issue.

2. I have called several referrals from the MKE hard money page, I saw peoples bank on there but haven't contacted them yet, called a few others. Landmark has a program that literally is designed for this and even though it meets all the qualifications, I tried to get it refinance through them but I didn't have one of the units rented so they declined and said to come back when it was rented because that was the issue, I did that and got it rented, would have great cash flow with the rates they provided initially, a 5 year convertible or a 15 year and even then it still has the cashflow. I sent them the details and they declined it with out me even applying. You really start to feel deflated when that happens. 

I would take the numbers for Waterstone, Sunset, and Peoples. I really would like to establish a relationship with someone that I can work with on a consistent basis and we both know what to expect from each other. Thanks again for talking about it with me. 

@Henry Clark Thanks for your reply as well. 

1. I guess I don't have rich investors haha. I have investors that can supply very healthy down payments via promissory notes. We purchase the properties, I rehab, refinance, and pay them out with interest and we do it all over again. Least that was my understanding of how to you use other peoples money to invest, I know several successful investors who have done this. 

2. piggy backing off the top, Investors supply money to purchase properties through the LLC. basically I have investors that want to get into real estate and provide funds to do so. I would use those funds to buy properties using traditional loans because I don't have hundreds of thousands of dollars nor do I know anyone who has the money to buy properties straight cash. If I had that I wouldn't need to write anything here.

3. That is my goal. I cant seem to find that company. I have an established relationship with Gomortgage a broker and Milwaukee hard money, I what I need the lender that can refi me out of hard money not using my personal name but keeping it all in the LLC. MKE hard money approved me for a loan on a city owned vacant property selling for $2,900 and 70k in rehab money probably because I have established a relationship with them, but If I cant find the finance company to take these properties over, I cant move forward. Your right, that's how I feel right now, collateral scatted all over that I cant use, I need my team member that's why I am here because I'm not finding them, I came to the forums to seek help in that. I don't want to shop, but I feel I need to shop to find my team member that will help me, how do I find them otherwise?

4/5. Will make sure I do both of those things. I thought cashflow would cover my refi, but I feel like I am out of collateral and will need to sell to get an influx of capital, still capital isn't really my issue. Like I said I have multiple investors ready to give me 25%+ down payment money no problem, So it sucks that I have the investment money to buy properties I just have no way to finance them, which means I am going to need to come up with a new finance model I guess, maybe a pool or syndicate. Again it seems I am going to need to sell this property because I don't see anyway around it right now. Your right, I am not solving my finance problem right now and its killing any progress I have had. Selling might solve that but I'll just lose most of my profit in short term cap gains and be right back where I was before buying the property. I always thought that if I buy properties, rehab them, rent them that I could refi them and keep moving but I cant keep moving if no one will refi a cash flowing property. No one on any podcast mentioned that issue haha I appreciate all your response and I will take what you said and work on it diligently and come back with a true assessment of what you said, beyond this reply. I really needed to get some frustrations out and I sincerely appreciate you taking the time to read and provide me with advice. Thank you! 

[Jayson Cain]

Hi Conrad,

Happy to recommend who I used for my cash-out refi a couple of months ago. I didn't have to have my properties leased after my rehab and I did it with my LLC. I then used the cash-out proceeds to buy another investment property.

[Marcus Auerbach]

Not surprising. With 3 properties you are too small to be considered commercial; instead keep them in your name, get good insurance plus an umbrealla policy and get residential financing.

LLCs are overrated for beginning investors with residential properties - they have their place for when your net worth is higher and you buy an apartment complex. In fact at that point lenders will require you to form an LLC.

I am not in favor of quit claim deeding; just because odds of getting caught are low you are intentionally viloating the terms of your mortgage.

[Bob E.]

@Conrad Scoville I ran into the same thing last month, and we have 20 properties and 33 units. SFR's have been tough for us to finance. I am in the process of doing a refi on a 6 unit building in Cleveland. US bank ran it through as a personal loan, spent weeks pulling info only to be turned down due to DSCR. We are now running the same property through Loan biz and they are processing it as commercial. Rates are a couple point higher but hopefully we get it done this time. Overall I would say the process for a commercial building (5+ units) is much easier so far.  I just have to see if it actually closes.

A few things we have done on the creative side. 1) Seller financing. we have done a few of these as 10 year loans fully amortizing, and have a couple under contract as 10 year with 2 year balloons. If you are buying from an investor it lets them spread their gains over multiple years. 2) IRA investing we have bought long term holding in our self directed IRA's. 3) We have borrowed from other investors with self directed IRA's that would rather lend than own. 4) Margin loan from a brokerage account, if you have a personal stock portfolio you might consider setting it up to allow margin lending, then make payments to yourself. Make sure you understand what a margin call is before doing this. 5) This is a bit of a SWAG but look for a company that will lend on IRA owned properties. These are non recourse loans so an entity that will make that loan would probably consider lending against a property owned by your LLC.

Lastly, if you cannot get financing consider flipping it through a turnkey company like Roofstock, we looked at doing one and found the pricing very favorable.

P.S.  I can vouch for @Melanie Eden, she is our PM in Milwaukee and has done a great job for us.

[Conrad Scoville]

Hi @Marcus Auerbach,

Thanks for your reply. Good to hear from you again! Yeah I am just a small fish at this point! I have them in my name and with good insurance, so I have that all dialed in, made sure I had that going in. The LLC's really haven't provided much help other than being able to get some business credit and book keeping purposes, hopefully ill grow to use them. I have noticed that with lower priced properties in the city using brokers is nearly impossible due to rule differences on what I believe they label "high cost mortgages". So that could be some of the issues I am seeing and need to find a bank that can work around that. I have also noticed my broker having trouble using my rental income against the properties which is what drew me towards commercial loans. Not sure that is normal but it seems to be coming up. I have only quit claimed once that that was to get the property into my LLC name because my Offer to purchase was in my name and I used hard money to get the loan which used my LLC. Ill have to quit claim it out now to get a conventional refi in my name, but that's not a big deal. I'm a pretty by the rule type of guy so I'm not trying to jeopardize anything that can compromise my mortgage and I know its low acuity thing, but don't see a need. I am trying to use my LLC when its appropriate and if it helps me ill use it, but Ill take any refi at this point with this property to get it off my plate.

[Demetrius Lindsey]

If you are in a pickle and the deal is that good. Maybe consider selling it and moving up. For a partner with good backing. 

[Marcus Auerbach]

@Conrad Scoville - being a small fish has it's perks, for example being able to get 30 year fixed money at an increadible rate. Commercial loans are usually 5 year fixed, 20-25 year amortized and +1% higher rates. That really eats into your cash flow, especilly the shorter amortization.

First couple loans are easy. Between 3 and 5 it's tougher, because you run into DTI issues and your rents have not made it on your tax returns, which is what lenders look at. After 5 it get's easier again, because banks will take you more serious now, however the criteria for a 30y fixed tighten after the fourth one and you have to find the right bank to get you up to 10 conventional loans. BTW that's 10 in your name and 10 in your wife's name.

After that you are stuck with commercial. As you grow bigger and can close 7 figure loans, banks are willing to negotiate rates and terms, because now they want your business. They may even call you. That's the natural progression. 

I suggest you talk to a few local Milwaukee banks like Equitable, Commerce State, Waukesha State, Park Bank, Johnson Banks, Town, Waterstone, Cornerstone, North Shore, Port Washington State Bank  etc - talk to their residential side. Have a short summary ready: subject property, your income, assets, taxes and make it easy for them to understand your situation - and come up with a solution. Not a big fan or mortgage brokers for investments, I believe the cons are bigger than the pros.

Also important: it matters which Loan Officer you speak with at the bank! You may get different answers from the same bank, depending who you speak with - some people have more of a can-do attitude than others when it comes to researching the different loan product they have and see what could work. Ask the front desk who works with RE investors.

[Bob E.]

When you talk to a loan officer, if they say no, drill down some.  Ask them why, what would you need to change to qualify, do they have other loan products that might work.  Lastly, if you don't get any traction ask them, since they are not a good fit,  if they know of other lenders that have a product that might work for your situation.  

[Conrad Scoville]

@Marcus Auerbach your right being a small fish isn't all bad! I am at that spot between 3-5 and I am hitting that DTI issue, I have talked with landmark because they have a program set up for this type of property, but they requested I come back after I have my 2021 tax returns exactly for that purpose and they would reevaluate the loan. I came to them originally to fund the loan but only half the property was rented, and I knew they couldn't get it through but they tried for me anyways. So I will probably just bite the bullet, extend my hard money and work towards getting my taxes done asap. I just closed two loans with a business partner so I am up to 5 properties including my personal home so I feel like I am hitting that resistance ceiling now. Good to know that it is 10 in my name and 10 in my wife's name that opens the door a bit and never would have though about it. I appreciate hearing about the progression, I feel like the doors are all the sudden opening up to grow and its just trying to put those pieces of the puzzle in place

@Bob E. Thanks for the follow up, sharing some of your challenges and advice. Its good to know that I'm not the only one dealing with these types of issues. Hopefully your Multi-family deal went through! I feel and what I have been hearing is the commercial side seems so much smoother, that is what Marcus was echoing too. Our family business is General Contracting but we focus on commercial interiors so we work with a lot of commercial brokers and talking with them and commercial bankers at a lot of mixers is just seems like everything is smoother at those levels including the contracting! Hoping I can get to that monopoly level of trading in my houses for hotels but getting through these few hurdles are a big test for me. I really like the seller financing option and I will make a note of the the terms, do you have a sample term sheet you could send me? It would help me to read through one to understand the ins and outs a little better. Yup I have heard of IRA lending and I have a stock account that has a margin set up, unfortunately that account has taken some hits recently so ill need to build that margin back up again, but That concept is really smart, when that account was rocking I had a huge margin available to me and that would have been a smart move. Ill also check out roofstock and see what they have to offer. Thanks again for taking the time to provide me with advice!

[Bob E.]

@Conrad Scoville  Terms for seller financing is whatever works for the seller, and you.

Key things to work out with the seller;

• Down Payment 
• Rate
• Term
• Balloon Y/N

Once you work out the terms have your lawyer draft the note.  Given that you have some mortgages already pull those out and read through them.  There are two pieces in RE lending 1)  The note, identifying what is being loaned and repayment terms.  2)  The mortgage pledging a property as collateral against performing on the note.

We also have a handful of private lenders that we use for our rehabs.  We usually typically borrow 30k for 7 years at 10% with a payment of $498.04.  We have loans maturing every year from 2024 - 2030 (we have a few longer term).  That means in a few years we have annual income increases with every note that matures. 

What works for the seller depends on what they are looking for.  Some are looking to be less active but want retain the cashflow.  Some are looking to spread their gains over a few years to manage their income and taxes.