Refinancing Multi-Member LLC

[Travis Bagley]

Alright I never thought this would be the hard part of real estate investing.

I have 2 properties that are owned outright by my LLC. Properties are in the 165K and 170K area so not looking for a micro-loan or anything strange.

What does the refinance process look like inside of an LLC? Every time I call a bank or credit union things are great until I mention LLC. The second I say that I can hear an audible sense of confusion on the other side of the phone. I am finding that most 1st or even 2nd tier folks in the mortgage department are not experienced with this and have no idea what to do. I'm frustrated because I feel like they should be able to tell me what my options are and fully explain the process.

1) If refinancing a property owned by an LLC is it a commercial loan? Even if I am being asked to guarantee it personally?

2) Will anyone loan against the LLC and the property without a personal guarantee? I don't really want to be personally liable. It defeats the purpose of the LLC.

3) Am I going to get bad rates because my properties are in the LLC? So far I have only been offered 5/1 ARMS at over 4%.

Thanks and as always appreciate the advice.

[David M.]

@Travis Bagley

Yup... Legal entities such as LLC's are not eligible for conforming residential loans. That is a part of the "cost of doing business" with a LLC. The "frankenstein" approach of moving Title to yourself to get the loan and then back just messes with your corporate veil since in my layman's opinion that is using the LLC as an alter-ego. So yes, you need to commercial financing, i.e. non-residential financing.

Until you "build up" the LLC to have its own credit history and enough of its own income, I believe you will have to personally guarantee the loan. Consult a professional, as I don't think it entirely defeats the purpose of the LLC. Personally guaranteeing the loan may make it difficult for your to "walk away" from the business. But, the limited liability protection of the entity shouldn't necessarily be affected should somebody sue the LLC.

Yes, commercial loan rates and terms for rentals aren't nearly as good as residential loans.  Others have posted on BP on being able to find 30yr commercial loans, but never really say what are the rates.  But, 4% isn't too bad actually.  The other rates I've been reading is more like 5%

Good luck.