Refinancing when property is owned by an LLC

[David Parnell]

Are there any issues that I should be aware of if I purchase a property with a full-cash purchase into an LLC, with the aim that I will refinance it later? Will the mortgage issuer for a single family property lend when an LLC is the owner, or are there any other issues that I should be aware of?

[Justin B.]

When refinancing under the name of the LLC, it just means the terms will be worse. Typically you'll get 75-80% LTV at best, 20-year AMM, and as of right now, probably 6-ish% interest (plus a 5 or 7 year balloon). This just means the monthly payment will be higher than if you owned as an individual. It will be slightly harder to find a bank willing to lend but I wouldn't say difficult (I've got 18 properties under an LLC all financed and some re-financed by a bank). This is because any loans to an LLC are "in-house" or "business" loans not backed by Fannie/Freddie.

I wouldn't worry about it unless your expectations are greater than what I said above. Also, regardless of what you hear on BP, you WILL have to personally guarantee the loans. All members of the LLC will be required to do this. Can you get a loan on the LLC without personally guaranteeing it? It's possible but extremely rare and the terms would be way worse than above. All the members of our LLC have had to personally guarantee. I don't see that changing anytime soon. Maybe at 100+ units, it starts to become a possibility (depending on the deal). If you don't have many properties, don't look for a bank where you won't have to personally guarantee the loan. Also, smaller banks ar better for LLC loans than bigger ones. Look for local (or state-wide) banks. Stay away from regional or national banks.