Scaling - Safely, effectively, and simply

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Scaling - Safely, effectively, and simply

Joe Jung
Member since 2021 · 29 posts · 8 votes

Hello everyone,

I'm a fairly new investor with 5 properties (1 Primary and 4 in Cleveland, OH) to my name and I'm starting to branch out.  I'll be purchasing a home a Kansas City as well as somewhere in TN and quickly approaching my 10 limit.  Until now, my goal has been simple, get to 10 properties using conventional loans using umbrella loan to mitigate my risk.  That's coming to an end now and it's forcing me to look at other avenues which I narrowed to portfolio lenders, commercial lenders, and hard money lenders. 

I've noticed that all hard money lenders are requiring an LLC (some requiring to be in Delaware) and obviously, commercial lenders will require some form of an entity as well. So my question is this - How have people scaled? Do you have all one-hundred properties in the same corp? Putting each home in a different LLC seems to be a massive headache, not to mention keeping track of all the EIN and entity. I feel like if I'm doing 100 units, those would be worth having in a different entity under a holding company. Not to mention, I primarily invest out of state and I have an LLC in Washington state then I registered it in Ohio when I got my first property and I can't imagine doing that in EVERY state.

So veterans, how have you done this when expanding out of state?  I know I'm barely going to hit 10 properties, but I want to expand and scale in a smart fashion.

Thank you in advance.

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  • Randall AlanPro Member
    Investor · Lakeland, FL · Member since 2017 · 1k+ posts · 1k+ votes
    4y
    Quote from @Joe Jung:

    Hello everyone,

    I'm a fairly new investor with 5 properties (1 Primary and 4 in Cleveland, OH) to my name and I'm starting to branch out.  I'll be purchasing a home a Kansas City as well as somewhere in TN and quickly approaching my 10 limit.  Until now, my goal has been simple, get to 10 properties using conventional loans using umbrella loan to mitigate my risk.  That's coming to an end now and it's forcing me to look at other avenues which I narrowed to portfolio lenders, commercial lenders, and hard money lenders. 

    I've noticed that all hard money lenders are requiring an LLC (some requiring to be in Delaware) and obviously, commercial lenders will require some form of an entity as well. So my question is this - How have people scaled? Do you have all one-hundred properties in the same corp? Putting each home in a different LLC seems to be a massive headache, not to mention keeping track of all the EIN and entity. I feel like if I'm doing 100 units, those would be worth having in a different entity under a holding company. Not to mention, I primarily invest out of state and I have an LLC in Washington state then I registered it in Ohio when I got my first property and I can't imagine doing that in EVERY state.

    So veterans, how have you done this when expanding out of state?  I know I'm barely going to hit 10 properties, but I want to expand and scale in a smart fashion.

    Thank you in advance.

    Several things to understand here… first, it's 10 properties in your name. If you are married, you can also put 10 in your wife's name. We still ran out, so did a commercial consolidation loan with a lender that held their own loans (portfolio lender)… merging 5 smaller loans into one commercial loan in an LLC name. Yes we had to personally guarantee, but this loan did not show up / get counted the next time we financed a property… but can't swear it was suppose to happen that way when I read the Fannie Mae guidelines.

    Second… we have been employing a strategy of cash out refinancing our older properties (before the interest rate hiked) where we would be able to pull enough cash out due to appreciation to pay off other loans we had taken out previously.  It let us drop our interest rate and free up loan slots as well.  It might not work as well now with the rate environment, but you do what the market gives you at any given time. 

    We have also sold off properties that haven’t worked well for us… neighborhood worse than expected, and problem properties… again freeing up loan slots and using accumulated equity to pay off other properties.  We have gone from 19 loans to 9 in the past 2 years… without sacrificing cash-flow!  (That’s the best part!)  The pay down of loans, and higher interest rates helped offset the loss of revenue from properties we sold.  

    We have bought all our properties in our personal names, as you can't do a Fannie Mae loan (up front) in an LLC name on residential financing. We do have a big umbrella policy to offset some of the risk of taking that approach.

    All the best!


    randy 

    0Reply
  • Taylor L.
    Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
    4y

    Scaling requires tools & teams. Eventually you run out of your own hours in the day, and in order to do more you need to get more time (grow your team). For you that might mean hiring someone to manage your books. If you plan to do 100 units you'll need that person eventually anyway.

    0Reply
  • Joe Jung
    OP
    Member since 2021 · 29 posts · 8 votes
    4y
    Quote from @Randall Alan:
    Quote from @Joe Jung:

    Hello everyone,

    I'm a fairly new investor with 5 properties (1 Primary and 4 in Cleveland, OH) to my name and I'm starting to branch out.  I'll be purchasing a home a Kansas City as well as somewhere in TN and quickly approaching my 10 limit.  Until now, my goal has been simple, get to 10 properties using conventional loans using umbrella loan to mitigate my risk.  That's coming to an end now and it's forcing me to look at other avenues which I narrowed to portfolio lenders, commercial lenders, and hard money lenders. 

    I've noticed that all hard money lenders are requiring an LLC (some requiring to be in Delaware) and obviously, commercial lenders will require some form of an entity as well. So my question is this - How have people scaled? Do you have all one-hundred properties in the same corp? Putting each home in a different LLC seems to be a massive headache, not to mention keeping track of all the EIN and entity. I feel like if I'm doing 100 units, those would be worth having in a different entity under a holding company. Not to mention, I primarily invest out of state and I have an LLC in Washington state then I registered it in Ohio when I got my first property and I can't imagine doing that in EVERY state.

    So veterans, how have you done this when expanding out of state?  I know I'm barely going to hit 10 properties, but I want to expand and scale in a smart fashion.

    Thank you in advance.

    Several things to understand here… first, it's 10 properties in your name. If you are married, you can also put 10 in your wife's name. We still ran out, so did a commercial consolidation loan with a lender that held their own loans (portfolio lender)… merging 5 smaller loans into one commercial loan in an LLC name. Yes we had to personally guarantee, but this loan did not show up / get counted the next time we financed a property… but can't swear it was suppose to happen that way when I read the Fannie Mae guidelines.

    Second… we have been employing a strategy of cash out refinancing our older properties (before the interest rate hiked) where we would be able to pull enough cash out due to appreciation to pay off other loans we had taken out previously.  It let us drop our interest rate and free up loan slots as well.  It might not work as well now with the rate environment, but you do what the market gives you at any given time. 

    We have also sold off properties that haven’t worked well for us… neighborhood worse than expected, and problem properties… again freeing up loan slots and using accumulated equity to pay off other properties.  We have gone from 19 loans to 9 in the past 2 years… without sacrificing cash-flow!  (That’s the best part!)  The pay down of loans, and higher interest rates helped offset the loss of revenue from properties we sold.  

    We have bought all our properties in our personal names, as you can't do a Fannie Mae loan (up front) in an LLC name on residential financing. We do have a big umbrella policy to offset some of the risk of taking that approach.

    All the best!


    randy 


    Thanks Randy, I have definitely thought about it where I payoff loans before moving to the next deal, but right now that method doesn't make sense for me as I'm not as equity rich and the higher rate would kill my cashflow.  I do feel like the overall progress would be slowed for me as well, but defnitely appreciate the insight!
    0Reply
  • Joe Jung
    OP
    Member since 2021 · 29 posts · 8 votes
    4y

    @Taylor L. Hi Taylor, that won't be a problem. What I'm worried about are my structures. I was told having them all in one LLC just creates issues because if that LLC is sued, all properties are part or the company. But creating LLC for each property is not only expensive, but time consuming as well.

    How would you structure it? How many LLC or just one? That's kind of what I was hoping to figure out

    0Reply
  • Ryan Deasy
    Lender · Farmington, CT · Member since 2015 · 542 posts · 321 votes
    4y

    @Joe Jung

    good question!

    my partner and i have a number of LLCs but we have multiple properties in each. we do create new ones as we get some larger properties though. for example we have a a few 5 units and 6 unit in one, but created a whole new LLC for our 21 unit. i agree with you. a different LLC for each is crazy. an attorney may be able to advise best.

    0Reply
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