BRRRR Refi cashout under new LLC or personal?

3 Replies

Hello,

We have 6 sfh rental properties that have been turnkey conventional loan purchases. These 6 were purchased under our name using our w-2, not under a LLC.

Now the fun begins! We just purchased our first (BRRRR) home for cash under an LLC. We are currently only a month into the Reno and I know it's not till the 6th month we can refi & take advantage of our renovated property new value.

Questions:

1. When I go to refi it will be under our LLC which will only have a renter under it for 2 months. Will I apply for a cashout refi under the LLC or will it be personal assets w-2 / cash reserves used?

2. If it's under the LLC will my interest rate be higher than if used personal asset/accounts?

3. If we continue to with the BRRRR method do you recommend a different LLC per home (sometimes with different partners) or keep it all under the same?

4. Is it necessary to move the original 6 under LLCs? If so, how does one go about doing that? We’ve owned them from 6-24 months.

Any advice as I prep my numbers for refinancing.

Thanks!

Hi @Andy Zirger Zirger! Zirger! Good questions. First off, no need to wait 6 months to refi. Find a portfolio lender like LimaOne and as soon as you have renters - go for it. They will typically lend (at least before COVID) on the income of the property, and not require "seasoning." So to your questions:

1. You can do a cash out refi with your LLC, as a matter of fact, if you use a portfolio lender like I mentioned above, they will require you use your LLC.

2. With a portfolio lender it may be a little higher. Maybe, maybe not - shop it. Either way, rates are so low right now...

3. Personal call really. You can also insulate yourself with umbrella insurance. If you do have an LLC - ensure it is setup correctly (talk to Corporate Direct).

4. Not necessary, see #3. This is more about risk management. If you feel exposed, talk to a real estate attorney about how to legally move them to an LLC. You could always refinance the 6 using an LLC and a commercial loan into 1 loan.

I hope this is helpful!

@Andy Zirger I echo a lot of what Joe said:

1. This depends on how you want to hold title. You can refi into your personal name, but seasoning for cashout is 6+ months. If you want it in the LLC, then the underwriting will be bank dependent. They most likely will look at the asset and your creditworthiness (quite possibly not even the W-2 income).

2. Most likely yes rates will be higher.  This is a business cost.  Shop around.

3. Not a lawyer here... This is personal preference. If you are bringing in other partners, most definitely open a new LLC. In fact, I would have an LLC that then partners into the new LLC that holds the new asset. Otherwise, you could continue to use the same LLC, and understand your equity exposure. Also note, if you flip a property instead of hold, then you want that one in a totally different LLC for tax purposes (keep active and passive income separate).

4. Again, this is personal. There are so many other things to do that offer protection as well: 1. Being a great landlord, 2. General liability insurance, 3. Commercial Liability insurance, 4. Lending (lowers your equity stake in the property), 5. Property management (outsource some responsibility). Make sure that you are looking at this as a wholistic plan.