All Forum Posts by: John Morelli

Allen, if you're working with a bank and seeking a loan for a rental property, they're recommending a 10 YR Term Loan, not likely a 10 YR ARM. There's a difference, and that difference is how they benchmark cost of funds and interest rate risk from a balance sheet capital perspective.

If you're financing residential rental property (anything 1-4 units), you're best served with a mortgage broker or non-bank lender. 

If you can't qualify for a FNMA/FHLMC conventional investment property loan with a 30 YR fixed rate, look for a mortgage broker that will find you the best terms on a permanent DSCR based loan.

Pay the 1% extension fee, there isn't an alternative option that will be even remotely close in total cost for short term financing (lender fees, title, etc).

John Morelli

You can easily obtain SBA 7(a) financing up 85% leverage on the business acquisition (assuming cash flow will support debt service requirements), even without real estate. 

The most significant downside to SBA financing without real estate is that you'll be limited to a 10 year amortization on the acquisition and any working capital or (new) equipment being financed. Rates are typically Prime + 2.75.

I do, or alternatively, a poorly chosen cut and paste answer from an unknowledgeable source. Certainly, none of the answer is factual, nor actionable. 

Since many others have answered your initial question, I will just clarify this point: When you are seeking to finance real estate (other than a primary or secondary residence) with a business entity (i.e. LLC, LLP, S-Corp, etc.) you are seeking a commercial loan (business purpose if you're talking to a residential mortgage broker or lender). The label "DSCR" isn't a loan type, but rather a qualification method, which simply implies that the basis for eligibility and repayment of the loan will be the net operating income (NOI) produced by the property, as opposed to your personal income.

The best sources for the loan you're seeking (most competitive and flexible) is a local bank or credit union that provides commercial loans for the type of property you're financing. 

The challenge is determining which bank or CU will lend, then negotiating the terms you need. This is where a skilled and professional commercial mortgage broker will be of substantial assistance and will be well worth working with. Commercial mortgage brokers possess the adeptness to negotiate better rates, terms, and fees from different lenders, enabling borrowers to secure more advantageous terms. With their extensive network, brokers can leverage competing lenders to secure longer loan terms, lower interest rates, and reduced origination fees, substantially minimizing the overall loan cost for borrowers.

I hope this information helps to answer your question and provide some additional context. 

I'm glad the information is helpful.

Don't listen to these hacks, just cooperate with your original lender, by allowing them to get loan sold and securitized (90 days or less), and do yourself a favor by letting your new lender or servicer get the loan boarded onto their systems.

Once the above takes place (or you've given them their reasonable allowance of time requested), just transfer title to your LLC. Both FNMA and FHLMC permit this, under the following circumstances:

• Notes: For all such transfers affecting mortgage loans purchased or securitized by Fannie Mae on or after June 1, 2016, the transferee is not required to occupy the property
• a limited liability company (LLC), provided that
• • the mortgage loan was purchased or securitized by Fannie Mae on or after June 1, 2016, and
  • the LLC is controlled by the original borrower or the original borrower owns a majority interest in the LLC, and if the transfer results in a permitted change of occupancy type to an investment property, such change does not violate the security instrument (for example, the 12 month occupancy requirement for a principal residence).
  • The servicer must notify the borrower that a property transferred to an LLC must be transferred back to a natural person prior to any subsequent refinance application in order to meet Fannie Mae's Selling Guide underwriting requirements.

Citation: D1-4.1-02: Allowable Exemptions Due to the Type of Transfer (04/13/2022)

Now, you will still have the Note and reporting in your name individually and will still be personally responsible for the mortgage and most likely, the manner of transfer will enable any litigant to pierce the veil of your LLC, but you'll have what you wanted, for whatever reason.

The technical permissibility of the transfer aside, as others have stated, it pretty worthless to you in the context you described. 

Also, if the subject property is in California, or any other DOT state, you have some additional considerations with the conveyance.

Since you've ruled out a handful of the better-known debt funds that provide ground up and build for rent financing, are you specifically seeking to improve on the market-rate terms for a construction loan, or do you need a specific underwriting parameter you're not finding?

The most advantageous terms will generally be achieved through a local, in-market regional or community banks that provides construction financing for investors. There are many south Florida banks that provide construction revolvers and closed-end construction financing to investors for residential builds. 

If you don't have a network of these relationships in the market footprint of the project, it is best to work with a commercial mortgage broker. Relying solely on a single lender or bank can pose significant risks, potentially leading to unnecessary expense, rejections or unexpected obstacles during the process. With their extensive network, brokers know who is lending, and can leverage competing lenders to secure longer loan terms, lower interest rates, reduced fees, and most importantly, favorable loan covenants, substantially minimizing the overall risk and loan cost for borrowers.

The scenario you've outlined is best suited to hard money, since your lending needs are transitional, involve light rehab, and would benefit from building an interest reserve into the loan for at least a portion of the term, if not full term. A six months interest reserve is fairly standard with a 12 month term, and will work well with the LTV, ARV, and intended exit plan being the sale of the property.

The financing you'll need is readily available in the market from local hard money lenders, and as others have mentioned, the credit will not be of much concern, provided the ARV comps hold up and the budget for the scope of work is in line.

Good luck to you and your Mother. Let me know if I can be of any help. 

Eric,

There are several variables to consider in a multifamily seller financing scenario, but the amount of Seller equity shouldn't necessarily be one of the prime considerations, unless you are taking the property subject to existing mortgage debt. Depending on the type of financing and the specific details of the Loan Agreement, this may not be permitted nor advisable. 

If the Seller will be conveying the property via deed and providing standby or carryback financing, then you may generally disregard their current equity position. Make a deal or don't. 

Aside from the subject-to scenario, the greatest impact that the Seller's equity position will have on your deal is their power to negotiate price and carryback financing. 

If I misunderstood your question, let me know. If you're planning on taking the deal subject-to, you will need to carefully build a fence around the entire deal structure, including PSA, subject-to financing agreement, loan management, proper trust vesting to avoid due on sale triggers with the current lender, etc. 

You shouldn't disseminate AI generated or unvetted sources of information when people are seeking qualified, professional advice and feedback.