Financing Rental Portfolio and Flips - Need Advice!

[Matthew B.]

I have a small rental portfolio consisting of 3 SFR's and 4 MF units. All were purchased within the past 2 years with cash - no mortgages. The cash to purchase the properties was obtained through my flipping business. All rentals are owned 50/50 by myself and a partner and held in an LLC.

Me and my partner did not intend on purchasing so many buy and holds, but the deals that presented themselves were too good to pass on. As a result, much of our cash that we were using to flip properties is now tied up in the rentals. The thinking at the time was that we could just do a cash out refi after the properties were seasoned, and continue our flipping. Well, now it's proving very difficult to do that.

I've gotten the run around at several different portfolio lenders in the area, and they want 3 years of tax returns for the LLC, which we don't have (LLC that holds the rentals was formed in late 2013). They also only want to offer commercial loans with balloon payments due in 3-5 years since the properties are not titled to an individual.

I'm looking for advice on how to proceed. Our flipping business has slowed considerably because we don't have the cash to finance more than one deal at a time. We have 100% equity in the rentals that is just sitting there, but none of the portfolio lenders want to touch it.

Do I wait a year or more until the LLC has enough income tax history? Do I somehow title the properties in our personal names to get financing? I know there are tons of people on this site who are way smarter than me. What would you do?

[Devan Mcclish]

Matthew Buttner I was actually in the same situation. The bank would not refinance us because we don't have the tax returns or enough income to show them. So this is what we did:

We opened a line of credit on another property that we owned free and clear. They financed 50% of the value. So now we basically have an interest only line of credit open, we are treating it like a mortgage as the buy and hold rental income pays it down.
The other thing we did was put the loan in our personal names. You don't need the loan in the LLC name. If you and your partner have better tax returns and credit scores on than the business that will help.

Why are the balloon payments an issue? Once you flip a property pay down the note. You're best case scenario with the banks is collateralizing 50% of the value. They won't want to take too much risk with you. But hey that's better than nothing and your buy and holds should be able to cover it if you bought them right