All Forum Posts by: Rob Beeman

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@Eileen L. You can use the services of a commercial style lender that will loan to your LLC (one that you have or will create) even if the properties are residential style properties. The fact that the loan is to an entity (LLC) and not a person (consumer) makes it a commercial style loan. These lenders offer a loan tape product of 2+ properties within the tape. This is sometimes used when a single property within the tape might not qualify for financing (value, lease income vs expenses, etc.), however when that [property is mixed in with others within the tape, the average value, income, etc. makes sense.

The downside to a loan tape of 2+ properties: If you choose to sell or payoff one of the properties within the tape, the lender might require what is referred to as a "turbo paydown". They might require a 20% additional payoff for the turbo paydown.  The purpose of this is so that the "quality properties as collateral within the tape aren't sold off/paid off, leaving the less attractive properties as the remaining collateral. Lenders are always thinking about the downside.

Personally, I would do them as separate transactions, even though it might be a few dollars more for double fees, as I like flexibility and feel that some of that is lost with a loan tape.

@Matt Sora  Matt - on short-term loans interest only might make sense as the funds are not used for a long period of time, and the loan is paid off in a lump some on the exit (either via refi or property sell).

On long-term loans, interest only typically is used when there is a debt service coverage ratio (DSCR) issue and it is needed to qualify for the loan OR if the borrower is trying to gain a little more cash flow. Typically the interest only is limited to a period of time and then converts to a principal & interest loan at some point.

@Matt Sora  Sometimes it is best to mix it up - use both resources. Match the project up with the money source. Each offer pros, and each have cons as well, but for me, I migrated away from banks mostly because I didn't like being restricted and when the market turned the wrong way, they forgot who I was (they loved me when the market was strong and ignored me when the market got soft).

Got to love technology! To think of all of those grungy, smelly vacant properties that I walked through over the years and all of the headaches of dealing with contractors that try your patience during rehabs can now be avoided in the form of flipping called "Micro Flipping". Not sure what it is, or if you should consider it? Hopefully this post allows me to drop this link that explains it: https://www.quickenloans.com/l...

There seems to always be the next best way to make money in real estate!

Got to love technology! To think of all of those grungy, smelly vacant properties that I walked through over the years and all of the headaches of dealing with contractors that try your patience during rehabs can now be avoided in the form of flipping called "Micro Flipping". Not sure what it is, or if you should consider it? Hopefully this post allows me to drop this link that explains it: https://www.quickenloans.com/l...

There seems to always be the next best way to make money in real estate!

Got to love technology! To think of all of those grungy, smelly vacant properties that I walked through over the years and all of the headaches of dealing with contractors that try your patience during rehabs can now be avoided in the form of flipping called "Micro Flipping". Not sure what it is, or if you should consider it? Hopefully this post allows me to drop this link that explains it: https://www.quickenloans.com/l...

There seems to always be the next best way to make money in real estate!

@Adam Bromlow Adam, depending on how "rural" the area is where the properties reside and the "value" of each, typically a commercial style rental loan lender could help. Those lenders typically only lend to an entity (LLC), will have a minimum loan amount and minimum asset value. By itself any property would have to be worth at least $100K to have a min. loan amount of $75K. However if combined with others in a loan tape it might average out to meet their guidelines. An appraiser has one of three options to check for the location of the property: Urban, Suburban or Rural. Typically checking the Rural is a concern as most lenders do not want to lend on rural (farm style) properties as investment properties. However, if there is industry nearby (shopping centers, restaurants, businesses, etc.) then perhaps the Rural might still be OK as there is an argument that it was checked as Rural because it doesn't quite qualify for Suburban.

Here is what you will need to do. Have the leases on each ready, as that is what is used as the income source. The member(s) of the LLC are the additional guarantors. Probably will need at least a 660 mid-FICO (higher the better). Seek out a rental loan lender that lends on 1 to 4 unit properties in the market where the properties exist. The lender will gather the necessary docs from you and order appraisals. Typically tax returns are not needed, and if you are getting a cash-out loan(s), then bank statements typically aren't required either. It would be wise to supply the lender the addresses of the properties so that they can determine in advance if they fit the geographic makeup that they lend on or if they would be considered too rural for their loan product.

@Karen C. Karen, typically the operating agreement specifies the member's percentage of the LLC. This can be adjusted as long as all parties agree upon it and is typically adjusted via an LLC Resolution, dated and signed by the members. As mentioned, normally any member of 20% or greater in the LLC will be asked by a lender to be an additional guarantor on any loan issued to the LLC.

If any member(s) have a mid-FICO lower than the lender's required minimum, then the membership percentages can be adjusted to accommodate. Every operating agreement should state who the members are and what percentage each controls, even if their is only a sole member controlling 100% membership.

@Joshuam R.   Could be done a few ways:

Option A.) Create an LLC and all who invest become a member. The membership shares are equal to the investment that each make. Any person(s) running the show (locating the property, getting it rehabbed, getting it sold if flipping or rented if holding, etc. can receive a fee for doing so that all parties agree is fair. The profits are split according to the ownership shares.

Option B.) You are the sole member of the LLC if you are the one doing all of the work. The others putting in funds are private lenders that will receive their money back plus an agreed upon interest on the money. You create a promissory note with each person (each private lender) detailing their loan amount and what the return will be on their loan.

Option C.)  Do a hybrid of Option A and Option B. Some are members, others are just lenders.

Really depends on how active the financial contributors are going to be.