Financing / Loan for LLC - Personal? Commercial? 30 Year?

[Ben Naughton]

I'm in the process of acquiring a loan for a nice multifamily deal I have going.  55k + 15K rehab gets me a 1650 sqft home with 3 rental units in it currently bringing in $1,500 a month.  

This is our second rental property, the first we owner occupied with an FHA. We have now formed an LLC and want to finance this purchase too.

My plan is to acquire the property putting 20 to 25% down, do the renovations, rent it out, and refinance.  In reading many blogs on biggerpockets and the books by Brandon Turner it is usually taught to refinance into a nice 30 year fixed rate mortgage.

SO HERE IS MY QUESTION: How do I go about attaining a 30 year fixed if I want this property in an LLC?

As I've been calling local community banks to get a loan and have the property in our LLC all the lenders are offering loans that are shorter than 30 years. The best so far I think was 20 or 25 years with a 5 year adjustable rate. Are 30 year fixed only possible if we personally finance it?

We've even thought through a couple other scenarios, like using 0% APR balance transfers to get the property, fix it, then refinance, or if we could get a 30 year fixed off the bat, rehab it with our CC at 0% and let the cash flow pay them off over the next year, but the bottom line is whatever strategy we use it would be much better with a long term fixed loan.

Any input is appreciated!

[Thomas Franklin]

Ben Naughton Many Realtors will suggest purchasing a property using a FHA Loan, to reduce your out of pocket money. If the property requires rehab, the Realtor and/ or Mortgage Broker will suggest applying, for a 203k Loan. A 203k Loan is where the purchase price and rehab costs are rolled into a single loan.

Assuming you have a respectable FICO you can buy, with a FHA Loan (3-5% down, a 30 year amortization schedule, and a residential loan rate). Because you closed personally, you will not have Asset Protection, in the form of closing in the name of a LLC. What happens if one of your tenants has a slip and fall, on your property, or something else happens to them? You are on the hook and can be personally sued, for everything you own. Some people will say, "Take out a quality Insurance Policy and you will be protected." Ambulance chasing attorneys know their way around and can legally navigate around Insurance Policies. Another downside is you loose on the advantages, of the Federal Tax Code, by not closing in the name of a LLC.

If you want to close in the name of a LLC, Mortgage Lenders will offer you Commercial Loan Terms (25-30% down, a 15-25 year amortization, and a ballon due in 5-7 years). This is what I am encountering, in the current Mortgage Industry.

If you think you will go FHA, 203k, etc. and then Quit Claim the property, to a LLC, or a Land Trust you run the risk of the lender discovering a Title Transfer occurred and activating the "Acceleration Clause" or "Due on Sale Clause" that requires the loan to be paid in full, within 'x' number of days. These clauses are contained, in all Promissory Notes nowadays.

Many Realtors and/ or Mortgage Brokers will not tell you this information. Many, but not ALL are only focused on the commissions he/ she will earn and not focused, on your best interests. You many be asking yourself what can I do? Locate a Motivated Seller that will consider Seller Financing. You may have to put more money down (10-15%), but you can close, in a LLC, with no worries about banks. I have a lengthy Legal Opinion, from my seasoned Legal Team regarding this matter.