New Investor here, how would you do it, if you could start again?

Question

Hi all,

I've been learning alot about investment properties over the past year or two. I'm currently waiting for a seller to sign my offer on a duplex. I'll be purchasing in cash and then refinancing out ASAP. I plan to have this property in an LLC, but I know that can bring some complications with refinancing. I'm meeting with a few lenders over the next week or two, so I have some options.

From what I understand, upon purchasing the property I'll quick claim the deed into the LLC, but then I'll likely need to transfer it back when I want to refinance. Depending on amount of time I wait, I'm wondering if it may be smart to leave it in my name for a short amount of time, refinance and then quick claim the deed into an LLC?

How would everyone recommend I complete this in the most efficient/smartest way possible? I'll be able to use delayed financing with this, so no waiting period needed, although I still may wait a bit. Not exactly sure. Doing this the correct way is what is most important to me.

Greg Downey · Answer

@Dillon Vansickle If I were starting TODAY vs when I actually started (2017), I would likely bypass the "conventional" lending space altogether. Full disclosure, I work in the DSCR/F&F lending space BUT I have transitioned from using conventional (even when I worked in this space) to using DSCR and F&F loans.

Here are the reasons that I concluded:

1. All of your quit claim here, quit claim there stuff goes away. The loan is made directly to the entity. (I did all of that stuff as well)

2. The loan does not show up on your perosnal credit with DSCR loans. (the importance of this varies from person to person)

3. personal income is not a part of the loan qualification. (again, this matters more for some and less for others. This was really important for me after being deployed to AFG, then coming back to my current job... Mr. Bank had a REALLY hard time with that)

4. Pricing differences between 2017 and 2023 are quite different. In 2017, (when I started) a conventional loan was WAY better than your typical DSCR loan. NOW, we are seeing only about a 50bps difference (sometimes less) and fees are pretty much even.

Hopefully, that is helpful input from a lender-type

Randall Alan · Answer

@Dillon Vansickle

Be sure to check with your taxing district.  They may consider the transfer to your LLC as a new sale (as the LLC is a separate entity), and expect you to pay all the transfer fees (doc stamps, etc)  you paid when you first bought the property.  It could happen again when you transferred it back.  Different states do it differently.

We had to quit-claim deed our personal property from my wife, to include myself on the deed.  They charged us transfer taxes on it.  Florida has since changed their mind on this provision... but a few years ago, that is how it read, and we got to pay thousands of dollars in taxes (yeah! - NOT!)

While the LLC provides asset protection, you can also achieve similar protection results with an umbrella liability policy of sufficient size if the properties are in your personal name.  It's not exactly the same... but you have to weigh the advantages and disadvantages.  It gets trickier the more properties you have because each LLC has to be maintained (read: pay fees to the state each year to be current).  With just a few LLCs it isn't overly prohibitive... but the more you have, the more expensive it gets.

All the best!

Randy

Jim Wellington · Answer

Hi Dillion,

My company does commercial asset based loans for real estate that lend to the LLC.  We offer a 30 year fixed and ARMS. Putting the loan into your corporation shields your personal credit score and also protects the title insurance policy you get a closing on your purchase. Check with the title company about transferring via quit claim deed. Additionally we don’t require tax returns or pay stubs. Our rates are generally a bit more than conventional loan rates but offer the benefits I touched on above. You can get up to 10 traditional property loans.  Generally our clients come to us when they’ve exceeded the 10, want the loan to their LLC, or don’t want to supply tax returns or pay stubs etc.