Accountant · Grand Rapids, MI · Member since 2020 · 12 posts · 2 votes
Hello,
I was recently told about bigger pockets and it is great so far. I have been investing in real estate for the last 10 years but have just heard about the BRRRR strategy.
It sounds intriguing. I have the cash and plan to do something similar before hearing about it. Always easier to buy a house with cash and can normally get a better deal.
My question for those who implement the BRRRR strategy is this:
After you have done this with 5 properties and now have 5 mortgages after refinancing each home. Do you still run into the problem of lenders only allowing 5 mortgages before you have to look for a different method of financing?
Or, is it different because each additional house your buying with cash and refinancing later?
Rental Property Investor · Smyrna, GA · Member since 2018 · 974 posts · 645 votes
5y
Hey @Anthony West, at that point (or before), talk to your lender about packaging those into 1 commercial portfolio loan. I wouldn't worry about the # of mortgages, you just have to make the jump to commercial.
Rental Property Investor · Smyrna, GA · Member since 2018 · 974 posts · 645 votes
5y
Hey @Anthony West, at that point (or before), talk to your lender about packaging those into 1 commercial portfolio loan. I wouldn't worry about the # of mortgages, you just have to make the jump to commercial.
Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
5y
@Anthony West
Yes, the 5 or 10 loan limit still applies. It’s just the number of loans you have in your name. Then you need to look to other forms of financing such as portfolio loans or just a commercial loan.
In another post, a BP’er mentioned these three firms. I’ve never used them. From their website they look to be real estate specific lenders doing commercial-type loans. That person said they even did commercial loans with 30yr terms..
Rental Property Investor · Salem, VA · Member since 2017 · 113 posts · 39 votes
5y
@Anthony West are all of these in your personal name? Like others said the commercial route is the way to go. If you have an LLC you can look at commercial lending by local banks or credit unions. Good luck!
Accountant · Grand Rapids, MI · Member since 2020 · 12 posts · 2 votes
5y
@Dustin Morris
The current properties I own are in an LLC. I would plan to have any additional properties I purchase go under the LLC also (or a new one). Sounds like I'll have to do some type of commercial loan once I get to that point.
Investor · Newark, DE · Member since 2014 · 245 posts · 198 votes
5y
For me it was really hard to find a lender for that first non-conforming loan. However once I found it, I developed a relationship with them and getting those loans financed became easy. Now my problem is lack of purchase opportunities... market is crazy hot in my neck of the woods.
Real Estate Agent · McAllen, TX · Member since 2017 · 382 posts · 281 votes
5y
Once you get to you 5 loans, you can begin using a hard money lender suchas as lendingone.com or lendinghome.com. Right now their interest rates are about 6 to 8% on 30 year loans which is not bad at all. You can definately make it work using the BRRRR strategy!
You might be able to find a local porfolio lender with better loan rates to.
Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
5y
Take it one step at a time and get some BRRRR deals under your belt. If you are bankable getting the first 4-5 loans should be easy. Once you have more experience the different lending doors will open to you if you want to expand.
No, not exactly... You can "do anything you want" with deeding your Title. The issue, in my layman's opinion, is dealing with protecting/maintaining the LLC's corporate veil. I've written about this a lot. It might be easier if you wanted to chat about this, if so send me a direct message.
But in short, say you purchase a property and hold Title in your personal name and also personally give the mortgage. Now you deed the Title to your LLC. This has a whole host of consequences that nobody has yet to truly answer or rebutt. Aside from the Due on Sale clause (which is sort of the least of your worries when it comes to asset protection), you have your Title Insurance (your policy might be voided since you've changed owners), you have to adjust your current insurance policy, the mortgage is still "left behind" and not in the LLC, and now whose bank account makes the payment for the mortgage? Co-mingling funds is the "black and white" way to pierce your corporate veil. The mortgage was given in your name, so the payment should be drafted from your personal bank account... hmmm...
For the "full" limited liability protection one is looking for from the LLC, you'd want everything under the LLC. It needs to be operating as its own separate entity, not as your alter-ego. Other than doing the above once, if you continue you create a pattern. Think of it if you were two separate people, strangers.. Would you just deed your property to me, expect me to make your mortgage payments, expect me to lease out the property and pay for all expenses, and hand over the rent to you? Oh, and when 'you' decide to sell I'll give you the profits? Of course, this would all be done with no signed papers --- right? who does any of the above without an agreement between themselves and their own llc?
I'm somewhat sure there is some sort of "middle" ground... maybe. Its a slippery slope since LLC's are State formed entities so each State's laws and jurisprudence applies. Unless you are investing with a non-spousal partner, the entity provides no tax benefits, its only for limited liability asset protection. But, most people don't want to 'pay' for that benefit (i.e. use a commercial loan) so they "frankenstein" their deals (in my opinion).
Accountant · Grand Rapids, MI · Member since 2020 · 12 posts · 2 votes
5y
@David M.
Thank you for the information David. My first few rentals I did purchase with the mortgage in my name and the transfer to the LLC as the bank told me I cannot put the mortgage in the LLCs name.
After reading your response to Shekinah, I’m assuming the reason the bank wouldn’t allow me to do that is because you would need a commercial loan.
Now that I know that, going forward what would be your advice for the BRRRR strategy. Buy it with cash in the LLC and then when I refinance, do so with a commercial loan?
What would you say are the pros/cons of a commercial loan? Is it easy to get approved for one?
Bingo... I'm sorry to say you've "fallen" into what I've seen is the common ignorance trap. Just like the vast majority of Realtors are residential Realtors, so are the lenders. But, they aren't looking out for your interests as they just want to sell you a loan and since they don't know how or are setup to originate a commercial loan...
Anyway, you need to work with a commercial lender. Just like commercial real estate agents, commercial lenders exist. The usual advice to talk to smaller/local/regional banks and credit unions apply. I don't have much experience with them, but since they aren't selling you a conforming loan (ie a loan being sold off to the secondary market of Fannie Mae / Freddie Mac), there is little uniformity. While they will want to make sure you can pay off/back the loan, how they do it will vary. Terms and rates also seem to vary widely. Some people seem to have found loans that you pay on a 30yr amortization schedule but has a balloon payment in 5 years. Some say they found 30yr payment and term schedules. Another BP poster suggested these three lenders who seem to provide 304 yr terms and payment scheduels (I've never used them, but looking at their websites they appear to be real estate specific lenders):
Yes, follow the BRRR strategy with the cash buy and since you are taking Title in the LLC, refinance with a commercial loan. I think getting approved can be easier since there isn't one "fixed" set of criteria like a conforming loan. You just might have to call around and find that lender that suits you and vice versa.
Reading on BP, while residential mortages are doing around 3% or less, commercial is anywhere between 4.5% to maybe 6%. Not everybody has 30yr terms. Most have earlier balloon payments. The rate and terms are the main cons to the commercial loan which is why many purposely do what you did accidentally (purchase under personal name and loan, then quit claim deed to your LLC).
Meanwhile, your profile says you are accountant. So, you should be able to make sure not to co-mingle your funds and keep the accounts clean for your LLC and keep it from being an alter-ego.
Accountant · Grand Rapids, MI · Member since 2020 · 12 posts · 2 votes
5y
@David M.
Yes, this definitely helps. Thank you for taking the time to educate me on this. All makes sense to me.
And yes, I am an accountant and have very precise books. So I should be good from that standpoint. I have a different bank account set up for each of my rentals and all transactions are strictly for that specific rental; Deposits and Expenses. Business/personal funds are never intermingled.