All Forum Posts by: Kevin Romines

Ah, the age old question of to put it in an LLC and finance it via commercial or portfolio money or to hold personally and get a Fannie Mae loan? Well, in the end, there is no one size fits all answer here. The LLC does afford you some level of protection and depending on how the LLC is taxed (as a partnership or a Sub S election) there may be some advantages that way as well?

Now, any good attorney can pierce the shell of the corporation and thereby get to you and your personal assets in most cases. So in cases of this nature, the theory that the LLC gives you protection, may not always be the case? But in most cases, yes it can give your personal assets protection

If you do hold them in your personal name, I would suggest that your insurance policy has the highest amount of liability coverage that you can get and that you follow that up with an umbrella policy for 1-5 million beyond that. The landlord policy and the umbrella policy both pay defense costs outside the liability limits and technically there is no limits on defense costs. However any insurance company would work to limit their defense costs by settling if they thought it could cost them more in the long run to defend it. 

Now on to the financing differences. You will get your best rates and terms with a conventional Fannie Mae loan versus the terms typically available on commercial & portfolio loans. Fannie Mae has a 10 financed property rule, however with some planning, you can get around that rule and finance as many Fannie Mae loans as you may ever want. I will elaborate on that later in this thread if anybody wants me to. 

The key that most borrowers are looking for is the best rates and terms without having a million hoops to jump through that is consistent and repeatable. So depending on your specific needs and desires, you will come to the best decision based on those parameters. 

@Michael Cohen Read my post above, I believe it clarify's this matter. 

@Tim Swierczek I stand corrected. I had previously mis-read the guideline.  Non-Occupant Co borrowers are not allowed on credit scores from 580-599. But, with a credit score of 600 + you can have a non-occupant co-borrower. Good catch Tim. 

@Andre Alves If you have 2 properties that are free and clear and you want to pull cash out to buy some more properties, then pull some of the cash out to pay off your debt that is causing you to have a high debt ratio. These debts can be paid off in escrow and therefore not counted in your debt ratio. With the rest of the money, use it to continue investing. 

Rentals really shouldn't be adding to your debt ratio, or if they do, it wont add much, unless your not buying the properties at the right price. I'm sure your buying them correctly, so just solve the debt ratio issue and keep on investing from there. 

@Jonathan DiBenedetto By far, the best pricing and terms available in this space is Fannie Mae and Freddie Mac small balance multi- financing. Their loans start at 1 million to 6 million. If the loan amount will be less than that, PM me, I can get you in touch with the correct lenders. 

Then just use an FHA to buy your next 1-4 unit owner occupied place with 3.5% down payment.......Your all set!!!

Back in the day......I mean back in 2000, my wife owned 6 adult family homes and I owned a mortgage brokerage. These homes were specifically built for the purpose of being an adult family homes. I was able to refinance them with Freddie Mac at that time. You might contact a lender in your area and run this by them and see if Fannie or Freddie will allow this?

@Tahsin Hashem Most rental properties tend to be close to or are debt ratio neutral. By that I mean, you get to count the rents coming in from that property to offset the mortgage payment on that property, minus a 25% vacancy factor. 

Gross Rents Monthly   1000

                                      X .75%

                                    =  $750

Minus PITI   $700

   + 50

You have a positive cash flow of $50 a month that gets added to your income. 

Or

Gross Rents Monthly         1000

X .75%

= $750

Minus PITI $800

- 50

You have a Negative cash flow of $50 a month that gets added to your Debts. 

Its all about what you will cash flow and how well you buy the property? In the end, you could buy 10 different properties and not have raised your debt ratio much at all?

@Yaicha Bryan Is your existing mortgage an FHA or a Conventional?

Well there is a 10 financed property rule with Fannie Mae, however you can finance 10 in your name and 10 in your wife's name and get 20 that way? Also there is no limit on the numbers of financed properties when you are buying a new owner occupied home. So if you want more rentals, go buy a new owner occupied home and turn your previous owner occupied home into a rental.......No limits then. 

Also, if you want to finance as many Fannie Mae homes as you could ever want, then once you hit the 10 limits, go open a Sub S Corp. Not and LLC and move some of the homes you have financed with a Fannie loan, into the Sub S and go get commercial or portfolio refinance on them. By doing this you just opened up a few slots of Fannie Mae financing that wasn't there before.

Fannie Mae doesn't consider a home that is financed in the name of the Sub S to be a personally financed property. Even if you have to sign a personal guarantee on that commercial/portfolio loan, its still not considered a personal financed property by Fannie Mae. This will not work if the property is in and LLC and you own more than 25% of the LLC.