Cash Out Refi, HELOC, or Home Equity Loan ?

Question

BP,

Scenario - Properties are cash owned.  Properties cash flow nicely.  All Non-owner occupied multi-families, 2 - 4 units.  All properties are part of an LLC.  My business partner and I are 50/50 partners of the LLC.

How would you get the cash out of the property?  Where are you finding the best fixed terms - Local or Institution?

Will it being part of an LLC change the financing products available?

Appreciate your thoughts BP team.

Caleb

John Caleb Pavlus · Answer

@Seth M. Jones, really appreciate you taking the time to respond.  This makes sense, but is unfortunate ...

~Caleb

Seth M. Jones · Answer

When you own properties in the name of an LLC, it limits the mortgage options to business financing only... This essentially means that you're doing commercial financing, versus the traditional mortgage financing which is so attractive. All of the options you are looking for are going to be possible through niche business lenders, but not at nearly as attractive of terms as if you owned them in your name.

Might be worth investigating switching to your personal name, getting an umbrella policy, then financing through a traditional mortgage. In this case, a HELOC offers the most flexibility (for continual investing), while with current rates the cash-out offers the most stability and long term lowest interest. Hope this helps

John Caleb Pavlus · Answer

@Elise Marquette, this is the scenario that I am looking at.  I have never done a cash out REFI before and would appreciate your insight. @Seth M. Jones

~Caleb

John Caleb Pavlus · Answer

@Kerry Baird, @Tarik Turner, @Elise Marquette

Appreciate all of your perspectives/insight.

~Caleb

Elise Marquette · Answer

Would definitely recommend switching it into your personal name to refinance to take cash out. Conventional loans can't close in an LLC. I would definitely recommend a cash out refinance though over a HELOC or Home Equity loan simply because the cash out refi will come with a fixed rate

Tarik Turner · Answer

The mortgage note would be under the LLC's name with you and your partner as signors/guarantors.

The rates will be a bit higher around the 6% range depending on the variables,  but there are 30 year loan terms that you can look into

Kerry Baird · Answer

@John Caleb Pavlus, he's spot on.  It is "easier" in some ways to get the portfolio money, in terms of lower documentation and not having your properties encumbered in your name, etc., but there are trade-offs, too.  Higher rates, and difficult to pull cash out with an LLC.

The cheapest path is getting all 10 conventional Fannie/Freddie mortgage spots filled by each partner and then moving those over into commercial mortgages to free up more conventional spots.  Much easier said than done, as reserve requirements become onerous for many investors.

Cash Out Refi, HELOC, or Home Equity Loan ?

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