Considerations on LLCs - requiring business loans to REFI or cash out

[Justin Li]

Hi all!

By way of brief introduction - my name is Justin and I'm an out-of-state real estate investor, currently focusing on single-family and small multi-family properties. Mostly long-term rentals, but I'm dabbling with STRs as well and have been fortunate to have experienced a successful first 2 months of owning my STR property. I currently own 2 properties and am closing on a 3rd. My goal is to acquire 15 doors in the next three years. Of course, I'm still just starting out my real estate portfolio and have some questions for you experts!

I've always been taught to put investment properties under an LLC for liability reasons. My plan was to have 3 to 5 properties per LLC to keep filing costs lower and bundle risk.

After talking with my lender today, I realized that moving properties to LLCs affects your ability to REFI. Apparently it's harder for banks to foreclose on LLCs, even if they're 100% owned by you, so they upgrade the risk and treat it like a business loan rather than a personal loan, which makes sense. I'm told the rates are close to 2-2.5% higher for an LLC.

This throws a wrench in my strategy which is to:

1) find and buy properties that are cash flow neutral to positive in the current "high" (relatively-speaking) interest rate environment 
2) refinance when interest rates drop to increase cash-on-cash ROI to 10%+.

Curious to hear other's experiences on this. Do you hold the properties under your personal name until you REFI to a good rate, and then transfer it to the LLC? And accept the legal risk in the meantime? This also makes taking equity out harder in the future?

Best,
Justin