Cash purchase with LLC, then buy back with conventional loan?

[Will Feetham]

Hi Bigger Pockets! 

I am actively looking for property in the Cincinnati area and as a lifelong Oregonian I have to say I love it here. My plan is to use a 203k or HomeStyle renovation loan to take "depreciated" duplex, triplex or quadplexes and bring them back to current standards for rentals. After the required year, I plan refi out of the reno loan and repeat the process. 

I'm finding that with the market as hot as it is, I may need to buy with cash to get a good property for this BRRRR approach. Unfortunately, there is a 6 to 12 month waiting period after purchase before I can use a renovation refinance loan. So, my question is: can I, or a friend, use an LLC to complete a cash purchase on a home, and then have the LLC sell the property to me using a reno loan? The benefit here is I can close rapidly for the initial seller and get them their cash in days or weeks, then take the time required to get estimates, permits etc so I can personally close the reno loan.

There is of course the risk that the LLC will make a poor purchasing decision and pay too much, but aside from that, are there negative tax implications for this? There should be no capital gains for the LLC because the buy and sell price are the same, unless that is somehow prohibited. Would you anticipate any issue from the bank side? If the LLC is operated by myself, or if required by a friend, would that be a problem? If I invested in the LLC or loaned money to the LLC which enabled it to buy property, including the one I end up buying back, would that be a problem?

Of course, the answer is "talk to a tax attorney" which I will certainly do, but I'd love to know the general shape of things before entering that conversation. Is this a great idea or am I ringing alarm bells? Thank you all very much for all the information you share, it's greatly appreciated! 

To add my own value here, I learned something interesting I'll share: most renovation loans require owner occupancy for 12 months as part of the contract. Because renovation can take up to 6 months, I was expecting that you'd have an 18 month cycle to find, buy and renovate properties. However, for the purposes of the occupancy clause, occupancy begins the day the loan closes. So even if it takes 6 months to finish the renovation and move in, you can start the paperwork on the next renovation loan on the 366th day after your previous loan closed. I hope that helps someone! 

-Will Feetham

[Wayne Brooks]

@Will Feetham A couple of issues…..

-you won’t get a 203k loan selling from an llc you are a part of, to yourself. It needs to be an Arms Length transaction.

-a 203k requires occupancy within 60 days, which usually Can be extended but your 12 month Occupancy requirement Starts when you actually occupy it, After the Reno.

If you want the Actual requirements, sit down with an experienced 203k lender.