All Forum Posts by: Jason DeFazio

It's residential - we're buying it as individuals not an LLC, but as an investment property, not primary residence. This will probably be the last time we use residential / personal financing given all the strict guidelines that come up.

But this is where we're at for the moment.. 

Hi - our funding situation has gotten a bit complex and we are well into the process of closing on our 3rd rental property. Looking for some help. 

We planned to use a HELOC on one of our other properties for the down payment (and some rehab). We plan to BRRRR the property. We cleared this with our mortgage lender, who said it was fine, and the debt service for the HELOC would just be counted towards our DTI. However, the credit union providing the HELOC initially told us we could get up to 90% LTV on our other property - they later said the max was 80% for investment properties. This obviously left us with less cash than we needed

We were able to secure additional private funding from family to make up for the reduction in HELOC funds. They are flexible as to how we structure the deal, and we do plan to securitize the loan using either equity in the property mentioned above, or a separate stock portfolio. We close in 15 days so there is no time for funds to season in our account.

Given the mortgage lender said using the full HELOC was OK, I'm hoping we can work through this - the private loan is just meant to replace the portion of the HELOC that was lost. I'm just not sure what questions they are going to ask next, or what documentation they'll need to substantiate the source of funds.

Hoping to get prepared and get a good sense of how this might play out by Monday. Any insight would be helpful

Thanks

My umbrella policy is personal and my properties are still currently held in my name which was my reason for posting this. I asked my umbrella provider specific questions about what was covered, and it was made clear to me that it would cover liability relating to my rental properties over/above the liability coverage included in my home insurance policy. I'm not an expert though which is why I posted the q,, but that was my experience 

@Chris K. - thanks for the reply , will take a look

@Rich O'Neill @Mike Burkett @Mike S. @Francene Iaizzo @Chris Martino @Dan Barli @Marcus Auerbach @Anthony Wick

Thanks for everyones help on this. We've decided to just increase our personal liability coverage at this point. This is something I'll revisit in the near future, but at this immediate stage the goal was to get adequate coverage quickly. For this, the liability insurance seemed like the right answer. As we grow, we will ultimately use LLCs as well to protect ourselves.  

There is a good discussion on these topics on the bigger pockets podcast episode 109. It's from 2015 so just reposting in case anyone hasn't come across it - I think it's worth listening to. It's seemingly geared towards investors that are a bit further along than myself currently, but a lot of these topics are covered generally.

Thanks

Jason 

Thanks @Mike Burkett - found it. This is helpful. 

@Rich O'Neill Based on everyone’s feedback I’m re-reviewing the umbrella insurance option. 

I have made the decision that if we do the LLC transfer we will touch base with our lender prior to doing so.

My main takeaway is that there is no clear answer. Each option has a drawback and it ultimately depends on how much we are willing to pay for protection and what risks we are willing to take. 

The comment regarding good attorneys being able to “pierce the veil,” while I’m sure is true, I’m not sure how it factors into the decision making. Under that assumption, most of this is pointless. I suppose that assumption favors the umbrella policy. 

I appreciate everyone’s feedback - I’ll review / discuss with my partner and confirm what we end up doing. We are focused on a few other things at the moment so may be a couple weeks before we proceed 

@Francene Iaizzo - tough.. let us know if any progress / how you get around that.

@Anthony Wick - nice - let us know what the lender says. I hadn’t thought much about the impact to insurance, thanks for highlighting 

Hi @Chris Martino - I’m far from a legal expert on this - however just based on reasoning from what I’ve read, I’d be surprised if what you’re saying is the case - if doing the transfer without telling the lender did not satisfy the legal reasoning for the transfer in the first place, I doubt so many folks would’ve chosen to do it this way. 

Many people on other BP forums have done this transfer without speaking to the lender highlighting limited risk of a call on the loan - my reasoning for creating a separate post was to try to dig deeper into the risk (no matter how small) and try to identify the best way to mitigate it. 

Thanks @Dan Barli - this is exactly the thought process I've been going through. I'd rather not refinance as we locked in a relatively low interest rate when we purchased the property. However, the cost of that v the cost of having some sort of issue and owning the property individually rather than in an LLC is minimal.

My gut says I should speak to the lender and hope for the OK rather than being forced to rush refinance or something like that down the line.

My only hesitation is that most people who’ve posted on BP seem to have just gone for it and not spoken to the lender previously and had no issues - but we’re in the early stage of our business and that just doesn’t feel like sound decision making at this point.

I also wonder if the trend will start to change now that interest rates are moving higher, lenders may be more incentivized to actually act on this. 

Will make a decision this week or next and post the outcome here

@Rick C. - yes, the first property, and really the only one in question is in the Philadelphia area - West Chester specifically. I anticipate having to pay the transfer tax unfortunately- based on what I’ve read, there aren’t many ways around it.

I'll weigh the pros and cons of the LLC in general since a few have been mentioned here.

But the root of my question is around how to go about the title transfer with respect to the lender if we do decide to transfer to the LLC. It sounds like people say the due on sale clause is rarely acted on, and many just do the title transfer and seem to hope for the best from that standpoint. I'm wondering if there is a way to mitigate the risk with more certainty, or what people's experience has been in the past with this.

Thanks Marcus. I have heard of doing an umbrella insurance policy as an option - I'll look more into this - however, even with the high $ value of coverage, are our personal assets not still liable? Assume this might lead to a bit more of a legal discussion, but I know the LLC segregates our personal assets in case of an issue. That is my main concern - that we would be sued for some reason and our other personal assets could be at risk.

Secondly, just for additional context, we just closed on our 2nd property - this one in the DC area. It was purchased as a primary residency for financing purposes and my partner currently occupies the property. However, our concern at this point is just ensuring we are limiting our liability around the 1st property.