Refinancing Options When Keeping a Flip Under an LLC (BRRRR Scenario)

[Sipan Y.]

Hey everyone,

I have a question for those who've been through the BRRRR process or have experience refinancing properties held under an LLC.

Let’s say someone buys a property under a single-member LLC with the initial intent to fix and flip. But after renovations, they decide to keep it as a rental and move forward with a BRRRR strategy instead.

What are the options for refinancing in this case?

• Can the property be refinanced into the individual’s name using a conventional loan?

• Or does it have to stay under the LLC, requiring a commercial or DSCR loan?

• Are there any tax or title implications when transferring ownership for refinancing purposes?

I’d love to hear from anyone who’s done this — what route did you take, and what were the pros and cons?

Thanks in advance for sharing your experience and insight!

[Doug Smith]

A lot of our borrower clients run into this a lot. My wife and I personally, as investors, have had to do it. We have multiple borrower right now that we did flip or new construction loans for that have their properties sitting on the market and we're moving them into DSCRs. I'm not sure I would move the property from your entity/LLC to your personal name. I do not know CA law well, so you'll want to talk to a CA CPA, but I know in FL you run into transfer tax issues. The conventional investor rates really aren't that much lower than a DSCR right now. We closed a conventional investment deal for a client on Wednesday of last week at 6.49% and we're locking DSCRs now at around 6.625%-6.875% in the entities' names. In addition, conventional refis are going to have to meet DTI guidelines using a global cash flow...so we're cash flowing your personal income, personal debt, other properties, etc in one Debt-to-Income Ratio. Most people can't cash flow after 2 or 3 properties conventionally. With a DSCR, we're only cash flowing the subject property...and you keep it in the LLC's name. One tip, make sure the lender you use is actually using the LLC as the borrower. I see some conventional lenders like The Loan Store that will do a DSCR and allow the property to be vested in the LLC's name, but they want the borrower to be the natural person and not the LLC. One other thing to keep in mind in converting a flip to a DSCR, most lenders will allow you to use the appraised value after you've owned the property for 6 months as opposed to your cost. That might drive your LTV down and get you better pricing. Good luck to you!