Has anyone had trouble "cashing out" property under llc?

Question

I went to a broker the other day just to understand what kind of lending options and packages were available, and he told me that my single family investment property should be in my name or lenders will not allow you to refi and cash out. Has anyone else experienced this?

Andrew Postell · Answer

@Kevin Auyong and @Reginald Dulaney I probably should make an entire post on this but no bank is going to call your note due if you are paying on time.  For a bank to do that it would mean THEIR OWN credit rating would go down.  They would have to transfer that loan on their own balance sheets to a non-performing asset.  Banks make TONS of money on mortgages.  Just pay on time and you will be ok.

HOWEVER.....let's say your lender did lose their mind and they called the note due anyway - they must provide you with AT MINIMUM 30 days to change the loan back to your personal name. Minimum. And it's one piece of paper that you can process in 24 hours to change it back.  So you could certainly change it back if this were to ever happen....and I cannot imagine it ever happening as long as you are paying on time....but that's what they must provide you anyway.

Hope this helps.

Dan Gamache · Answer

@Reginald Dulaney Companies that I call Private Lenders; Lima One Capital, CoreVest, Lending Home etc will only lend on non-owner occupied properties that are in a LLC (or similiar entity). Residential Mortgage banks/brokers that are primarily Fannie/Freddie lenders will not close in LLC. You will finds some community banks/credit unions that will allow financing in LLC, case by case basis with them.

Tarik Turner · Answer

That information is not correct. Of course you can refinance a property while holding it in an LLC.

Andrew Postell · Answer

@Reginald Dulaney you can 100%, absolutely, without a doubt refinance a cash out loan in an LLC's name.  The important thing to know here is that not every bank is good to use for us investors.  Some lenders are better suited for us than others.  That's why we usually preach using smaller, local lenders.  It doesn't HAVE to be that way but you have a greater chance of finding good ones if they are smaller.

Generally speaking there are 2 main types of loans for investors:  “Conventional” and “Portfolio”

Conventional - I'll define these as loans that come from Fannie Mae and Freddie Mac (if you recognize those names).  These loans are all 30 year fixed rate loans.  They have the lowest rates we can find and since they are 30 year fixed...they allow us to cash flow better...which helps us qualify for other loans later. The draw back to these loans is that they are more paperwork heavy than the other "portfolio" types of loans....but if you have ever received a loan on your primary home, it's likely that you will go through the same type of paperwork here with conventional lending.  Fannie/Freddie money = Fannie/Freddie rules.  NOT the bank's own money.  THESE ARE THE LOANS THAT REQUIRE THE PROPERTIES TO BE IN YOUR NAME.  There is a workaround though...more on that in a minute.

Portfolio - I'll define these loans as loans that come from the bank's own "portfolio" of money.  Sometimes referred to as "commercial" loans.  These loans are a lot more flexible than "conventional" loans.  Bank's money = Bank's rules.  If they like you, then maybe they will lend to you.  But since there is a limit to how much money the bank has access to....their rate will be higher...and usually a shorter term.  The most common portfolio style loan in Texas is a 20 year adjustable rate loan.  These loans are easier to get but the terms are different.  Usually who owns the property does not matter to this loan type.

So either you need a portfolio/commercial loan or.....

You can just change the property ownership to your personal name, get the Fannie/Freddie money, and then change it back after closing.  That's how most investors do it so they can get the lower rate, etc. from Fannie/Freddie.

*WHEW*  I know that was a lot but I hope it all makes sense.  Feel free to ask anything additional if you need.  Thanks!

Andres Sandino · Answer

@Reginald Dulaney its true is under an LLC during the refi it HAS to be a multi family property USUALLY 5+ units (aka bigger than a fourplex)

The banks dont like lending out to residential properties under business names so i think its best to transfer the title into an LLC AFTER the refi stage? Im new to RE too but ik how the bank thinks in their eyes its just not worth it “too small”

Reginald Dulaney · Answer

@Dan Gamache thank you!

Andrew Postell · Answer

@Reginald Dulaney I can't speak for them directly but I would guess that they only offer the Fannie/Freddie types of loans.  That would be my guess.

Russell Brazil · Answer

Conventional loans for people.

Commercial loans for companies.

Kevin Auyong · Answer

@Andrew Postell  to my knowledge no bank has called a loan. But if your rate was 3.5% and a few years let's say rates are 9% and the bank happens to audit and sees this, you don't think they might have incentive to get you on a higher rate loan? Of course this is hypothetically, I'm just throwing it out for information purposes, but I do appreciate your input.

Reginald Dulaney · Answer

@Andrew Postell excellent! Thank you! Is there any incentive for a broker to tell you not to have a property in an LLC? Curious as to why they were so adamant about it being in my name.

Has anyone had trouble "cashing out" property under llc?

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