Can't Close a Loan in the Name of an LLC?

Question

I don't understand what I'm doing wrong here.

Things have gone well with my first rental. I've moved out, stabilized it with two sets of great tenants, got a great new insurance policy, and the property seems to have appreciated quite a bit in value.

Now, I want to refinance out of my FHA loan and move the property into an LLC.

I DON'T UNDERSTAND why this is so difficult for lenders to understand. I am willing to continue personally guaranteeing the loan, I just want the property to be in the name of an LLC. The problem is that lenders won't allow me to close on a loan while the property is under an LLC, and I'm just being told that "everybody moves it to the LLC and the notes never get called due." I'm not interested in this. I do NOT want to get in front of a due on sale clause, and I believe that these notes WILL get called over the next decade as interest rates rise.

Are there lenders that will work within reason on this? Again, I'm going to guarantee the loan. I just want to move the property to an LLC now that I am no longer living in it!

Jerry Padilla · Answer

@Scott Trench

It is difficult to get conventional financing with the property titled in an LLC. Conventional financing requires the property to be in your personal name. You should be able to go the route of commercial as Bill stated, but terms are shorter, typically with balloon payments or ARM and interest rates are usually higher. I have thought about all these routes and decided to go the route of an umbrella insurance policy. It covers any lawsuit up to $1 million on all my properties, including my personal property and is $680 a year. We have 5 properties. It is a much cheaper route to go than transfering title and having higher interest rates on my properties, with ARM. You have to do whatever you feel comfortable with, but it is worth taking a look into this policy.

Bryan O. · Answer

@Scott Trench is there a reason to transfer the property to an LLC? Or is it just because it sounds sexy and people say you should? You will get far worse financing. I looked up the programs from the lenders @Brit Foshee posted with 30 year products. 1 started at 6.5% and the other was 7.25%. These are not remotely favorable (compared to residential rates) and will cost much more over the life of the loan. A $15/month umbrella policy may be enough to get you to your acceptable risk tolerance level.

The other commenters are correct that there are tons of lenders that will do commercial for residential, but you're usually looking at products that are amortized over 20 years and balloon after 5. Unless you are extremely risk averse, the cost you pay in having LLC financing seems extremely high for the perceived reward.

David Chwaszczewski · Answer

You need to find investor friendly lenders.  I was able to close a few loans with Lima One and they all were in my llc.  Try them.

Norma M. Valles · Answer

Thank you so much, Justin.

Justin B. · Answer

There are exceptions and the terms will vary but the situation is this.  Conventional loans are backed by Fannie/Freddie/Government but not if they are in a company name (only individuals names).  Having your loan backed this way makes your bank feel all warm and cozy inside.  MOST banks will only do business loans (in-house loans) for properties in an LLC.  They will require a personal guarantee and the property as collateral, but the Amortization is usually lower (20-25 years), interest a point or two higher than conventional, and a balloon payment (5-7 years).

There are banks out there who will do different terms for LLC's (see other posts), including 30-year Amortization.  But don't expect the same terms all around as a conventional loan.  Read the fine print, etc and make sure you understand what you're getting into.  I don't say that to imply they are bad at all, just that it's not quite as cut and dry as a conventional loan and you need to understand exactly what you're getting.  Just do your homework and you'll be fine.  Go check out a few of the options already mentioned here.

Norma M. Valles · Answer

Good morning:

We want to invest in vacation rentals ( at the beach).  We found a property and are ready to buy it.  We are buying with a conventional loan.  Do we need to transfer the property to an LLC?  What expenses we can deduct in our taxes?    Any recommendations  for insurance?  For advertising ?

Thank you,

Norma

David Chwaszczewski · Answer

@Scott Trench  I just did one with Lima one into my LLC with no issues.

Scott England · Answer

@Scott Trench

@Charlie Fitzgerald is right, you aren't talking to the right lender.

I understand your frustration and would recommend finding a commercial loan broker.

Can't Close a Loan in the Name of an LLC?

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