Refinance after buying with private money in LLC

[Chris Dayao]

We are about to buy a property for 25k with an ARV around 60k. We are buying it with hard money and then looking to cash out refinance (80% LTV). Should we buy the property under our personal names, or is it possible to cash out refi with the LLC? Should we get our own appraisal before going through with the deal or does the bank want to use their own appraiser?

[Darren Budahn]

Your lender will order their own appraisal when you go to refinance. No reason to get your own. If you want conventional financing you are going to want to purchase in your own name.

[Andrew Postell]

@Chris Dayao there is a lot to answer but these are very good questions. Please forgive the length here but this is the exact information you need to know. If you are buying a property with Hard Money it is normal for the hard money lender to order their own appraisal. If they do NOT have an appraisal on the home then I would highly recommend ordering one for your protection. Most hard money lenders who deal in investment property financing understand that the After Repair Value (ARV) is critical for them to get their money back. The hard money lender only wants to be in the property for a very short time - some are as long as 18 months - but the reason for this is because they normally charge 1% fee up front and a 1% fee when you are done. Sure, the 10%-14% interest is good but in realty they make most of their money with their fees. The faster they can get their money back the more money they can make in the year by lending it to someone else. If they are experienced with investment property lending they should have an appraisal done because of an EXTREMELY important rule - if you are to refinance out of the hard money loan you can only refinance 75% of the ARV. For example, if the home is worth $100k then the most a conventional loan can lend you is $75k. So if you bought a home for $50k, put $30k in renovations to the home, it appraises for $100k your payoff to the hard money lender will be $80k. But you will have to bring $5k to closing because the most a conventional loan can lend is 75% when you refinance (when you purchase they can lend 85%). So if you don't have $5k to bring to closing then the hard money lender won't get their money back unless they FORECLOSE on you. Remember that their loan balloons after 6-18 months, which means you owe it back in full. The entire loan amount. And that's why we refinance out of that home or flip it. When you refinance the conventional lender will also order another appraisal (remember it's a different bank to get the conventional loan thus they need a different appraisal) but if the value is unknown until you refinance it could lead to trouble. However, there is ANOTHER very important rule for you to know - you CANNOT do a cash out refinance on an investment property until 6 months has past AND you are once again limited to 75% of the ARV. Now these are conventional loan rules, which means a bank could be more strict than this if they wanted to. You may hear different banks say "We need you to own the home for 12 months before we can do a cash out loan" and so forth. So it's important that you find a lender that has no "overlays" - those are the extra rules a lender will put on top of the Conventional Guidelines. Conventional loans are the loans with really low rates and they are fixed for 30 years, etc. (They are also governed by Fannie Mae and Freddie Mac if you recognize those names). That's the loan type you want first. Is there another solution where you could get 80% of the ARV? The answer is yes! Those are called "Portfolio Loans". Portfolio loans are loans that come from the bank's private money (money that is not governed by Fannie or Freddie). So since it's their own money, they can lend it up to 80% if they wanted to - and their are portfolio loans out there that do that - but a portfolio loan might have a significantly higher rate, may only be amortized over 15 or 20 years (which would make your payment higher) or be a Variable Interest Rate. You may have to interview several banks to get what you need with a portfolio loan. As far as your personal name vs. LLC - a conventional loan will require you to put it in your personal name - but you can change it to your LLC after closing. A portfolio loan allows you to close in the LLC. I know that was a lot. Feel free to private message me for more information on this subject.

[Anthony Dooley]

The short answer is, it doesn't matter if you buy it in the LLC name or your personal name. You will be personally signing for the loan. The LLC is owned by you and you are borrowing the money, not the LLC.

[Chris Dayao]

@Anthony Dooley @Account Closed for the detailed explanation haha! We're going towards a lender that'll give us a longer term balloon option because it'll be a buy and hold investment property (duplex). 

[Anthony Dooley]

For $25K, I would just get a personal loan.  A 10% loan paid off in 6 months would effectively be 5%.  You could ask friends, family, and co-workers who may have money sitting in a CD earning 1% if they would loan it to you for 6% for one year.  Pay them back when you refinance. If it's truly a great deal, sell your car and anything else of value to scrape the money together.  There are people driving pick up trucks that cost $60K.  Crazy.  Good luck.