Realtor · Omaha, NE · Member since 2011 · 110 posts · 25 votes
Here is a subject I am not understanding very well and maybe someone can help me out.
I currently have one rental house that is under my name, but I plan to make an LLC and transfer title. I understand that the mortgage will still be under my name because banks don't have as much to trail back to if I start missing payments, and thats the LLC's only asset.
However, once I do have an LLC is there anyway I can obtain a mortgage just under the company? I've talked to a couple banks and most wont lend to an LLC because it's too risky.
I do know that many people will purchase a property and then trasnfer title, but this would defeat the purpose because evertyhing is still in your name financially. I would like to keep my credit from showing multiple mortgages and keep my personal information and company seperate.
Hi Antonio, we use Navy Federal Credit Union. They do commercial loans in the name of the LLC. It does require a personal guaranty, but the mortgage does not show up on our credit report. I don't know if they have a minimum loan amount...our first was ~$31k with them.
Hi Antonio, we use Navy Federal Credit Union. They do commercial loans in the name of the LLC. It does require a personal guaranty, but the mortgage does not show up on our credit report. I don't know if they have a minimum loan amount...our first was ~$31k with them.
Hi Antonio, we use Navy Federal Credit Union. They do commercial loans in the name of the LLC. It does require a personal guaranty, but the mortgage does not show up on our credit report. I don't know if they have a minimum loan amount...our first was ~$31k with them.
Antonio Esquivel the key for me has been developing a relationship with a local bank who keeps the mortgages in house or does not sell the debt. These are referred to as portfolio loans.
I ran into similar problems initially using traditional financing. Many folks will tell you to close in your name then transfer the property to an LLC. The theory is that it's not in the banks best interest to invoke the "due on sale" clause on a note that is current.
There is also a strategy that places the property in a land trust with the LLC as the beneficiary. This hides the transfer of ownership and the banks see this as estate planning vs. sell. I have never taken this approach and others will know more specifics.
@Antonio Esquivel Our first loan was 5%, 20 year amortization, 5 year balloon. It was for a single property, purchased cash in personal name and we refinanced it with NFCU, who had us deed it to the LLC at closing. Because they used the appraised value (80%), we are only into that property for the amount of the closing costs - basically 100% financing.
Our second loan will cover two properties. 7%, 20 year amortization, 7 year balloon,75% LTV.
@Chaz Reid Not sure there is a requirement. We incorporated in January, purchased the property in March and refinanced in September.
There is also a strategy that places the property in a land trust with the LLC as the beneficiary. This hides the transfer of ownership and the banks see this as estate planning vs. sell. I have never taken this approach and others will know more specifics.
Thanks Jason, thought this was interesting. I will be looking into this.
Antonio Esquivel the key for me has been developing a relationship with a local bank who keeps the mortgages in house or does not sell the debt. These are referred to as portfolio loans.
I ran into similar problems initially using traditional financing. Many folks will tell you to close in your name then transfer the property to an LLC. The theory is that it's not in the banks best interest to invoke the "due on sale" clause on a note that is current.
There is also a strategy that places the property in a land trust with the LLC as the beneficiary. This hides the transfer of ownership and the banks see this as estate planning vs. sell. I have never taken this approach and others will know more specifics.
I never knew about the 2nd option. That's very interesting and I'm going to read a little more about that. Thanks for your input.
@Antonio Esquivel Our first loan was 5%, 20 year amortization, 5 year balloon. It was for a single property, purchased cash in personal name and we refinanced it with NFCU, who had us deed it to the LLC at closing. Because they used the appraised value (80%), we are only into that property for the amount of the closing costs - basically 100% financing.
Our second loan will cover two properties. 7%, 20 year amortization, 7 year balloon,75% LTV.
@Chaz Reid Not sure there is a requirement. We incorporated in January, purchased the property in March and refinanced in September.
100% financing can be a huge benefit. I am definitely going to give them a call to see if there's anything I can work out with them. This may be what I was looking for! I wonder if other credit unions offer these smaller commercial loans. I previously thought commercial loans were for bigger amounts. I am just looking for a duplex.
Antonio Esquivel the key for me has been developing a relationship with a local bank who keeps the mortgages in house or does not sell the debt. These are referred to as portfolio loans.
I ran into similar problems initially using traditional financing. Many folks will tell you to close in your name then transfer the property to an LLC. The theory is that it's not in the banks best interest to invoke the "due on sale" clause on a note that is current.
There is also a strategy that places the property in a land trust with the LLC as the beneficiary. This hides the transfer of ownership and the banks see this as estate planning vs. sell. I have never taken this approach and others will know more specifics.
I never knew about the 2nd option. That's very interesting and I'm going to read a little more about that. Thanks for your input.
I learned of this method a little over a year ago. I have a couple of properties that I plan to do this with as well.
You describe a very common problem that I see by a lot of investors.
Problem:
Buy a property in personal name and assign it to your LLC via Quitclaim deed
The loan remains in the individual personal name i.e. shows up on your credit report
The individual investor debt to income is higher as a result of properties being in the individual investors name
The individual investor will run into a ceiling where the debt to income is high that they don't qualify for additional loans
Possible Solution:
Go to a small regional bank in your area
Ask to speak with a Small Business Loan Officer / Multi-family loan specialist this person may point you in the right direction
Provide the officer an overview of your business plan i.e. (buy real estate under an LLC x# of times)
Depending on the bank and their policy the bank may have a loan limit for such loans for example upto 500k
You get a small business loan under the name of an LLC
Provide the bank with all your personal documents, EIN and Operating agreement
Property goes through underwriting
Loan is approved
Loan is closed in the name of an LLC i.e. either a commercial loan or small business loan
Before closing validate with the loan officer that the loan will not be reported to the credit agency i.e. You will provide personal guarantee and since your loan is under an entity it does not get reported
Pros - You credit report looks clean, although you have to maintain sufficient reserves for future acquisitions in your LLC
Cons - Rates are higher so for example I got a 6% fixed for 15 years under LLC. This decision will be a factor as it impacts your cash flow etc so you have to consider this
HELOC - you won't get a HELOC for the property under an LLC
You may get a business line of credit similar to HELOC or HLoan
Refinance under an LLC is another thing you won't be able to take advantage of lower rates and your options to find a lender would be limited
Long Story short it is very much possible and I am confident there is a lender out there in your area who does the very same thing..you just have to find the right person.
@Antonio Esquivel Our first loan was 5%, 20 year amortization, 5 year balloon. It was for a single property, purchased cash in personal name and we refinanced it with NFCU, who had us deed it to the LLC at closing. Because they used the appraised value (80%), we are only into that property for the amount of the closing costs - basically 100% financing.
Our second loan will cover two properties. 7%, 20 year amortization, 7 year balloon,75% LTV.
@Chaz Reid Not sure there is a requirement. We incorporated in January, purchased the property in March and refinanced in September.
This is very interesting Ursula. I have a car loan and credit card with NFCU and they have always been very generous. So you are saying that they also do commercial loans for close to 100% financing and you can do so across multiple properties? Of course I understand there are other variables but as a new investor what I have come to understand is that bank financing is pretty tough to get.
Disclaimer, I am not an attorney but here is what I know.
If you transfer encumbered property (with a loan) into an LLC then you could be subject to transfer fees from county around 1% of loan amount and trigger "due on sales clause" from mortgage company.
The better way is to place encumbered property into a land trust and assign LLC as beneficiary and since this is not recorded and is a grantor trust neither of the above will be triggered.
Follow Attorney @Clint Coons as he is the most knowledgable person I have found with regards to land trusts and LLC's and overall asset protection.
Secondly a portfolio lender as suggested by earlier threads is the way to go if financing in an LLC but be prepared for common requirements of 70% ltv/arv and DCR of 1.25>, if unfamiliar with these terms input deal into BP calculator and don't forget to input vacancy rate and management fee.
I have series LLC. I get a commercial loan from a local bank with the following terms;
1. 5.25% Interest Rate
2. 20 Year Amortization
3. 5 Year Balloon
Now even though it's a commercial loan, I have to personally guaranty the payback and bank DOES report it all three major credit bureaus.
I see some people posting that if it's a commercial / conventional loan, the lender will not be reporting it to the credit bureau, I have yet to find one.
I have 3 small banks I deal with.
I am getting 15yr AMR
At 4.2-5.2% each bank is different.
With a 5 yr ballon.
None of these 3 banks report to the credit reports. FOR COMMERCIAL loans. They are all putting the loans in my LLC name.
I don't understand why everyone loves these 20-30yr loans. I'd rather take less cash in the beginning and have it paid off early.
@Pedro Velez They don't do 100% loans, they do 75% of appraised value. That means if you buy right, you can get into the property with little to no money out of pocket. For example, we were into our property for ~$31K between purchase and rehab. The property appraised for $39.5K, they financed 80% of the appraised value, and we walked away with a refi check of $29K ($31K minus closing costs). So we're only into this property for the amount of the closing costs. Their standard is 75% of appraised value, so I really can't tell you why they did 80% on this property. They made the decision right before closing and we just rolled with it.
Their refi process has been very easy thus far. The financial statements are a pain to complete, but beyond that, a rent roll and copies of the lease, it was very little documentation. Didn't even have to provide proof of income. I will caution that they are picky about certain things. They wouldn't refi one of our properties because of an underground gas spill that occurred YEARS ago about 1/4 mile from the property. My loan officer got me out of having to pay for the appraisal on that one.
Yes, they will combine properties into one loan. Our first loan was intended to cover two properties, but they pulled out of the one I described above. We're in the middle of our second re-fi which will be one loan for two properties.
If you invest out of state, you'll want to contact the business office in the state where your properties are. I live in GA, but because my properties are in NC I work with a loan officer that covers NC.
I have series LLC. I get a commercial loan from a local bank with the following terms;
1. 5.25% Interest Rate
2. 20 Year Amortization
3. 5 Year Balloon
Now even though it's a commercial loan, I have to personally guaranty the payback and bank DOES report it all three major credit bureaus.
I see some people posting that if it's a commercial / conventional loan, the lender will not be reporting it to the credit bureau, I have yet to find one.