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Updated over 6 years ago, 07/29/2018
Should I transfer rentals from LLC to personal name for loan?
I own several single family homes and a couple duplexes that are held in an LLC owned by myself and a partner. They're all rental properties.
I've been trying for years to do the "BRRRR strategy" as it's now called - since even before the term was coined. I've tried almost 30 different lenders, the majority being portfolio lenders, and none have been able to help me. The fact that the properties are held in an LLC automatically sends me to the commercial loan department and their less than desirable loan terms.
I thought my search was finally over when I found Trustco Bank. They offered a 10-year mortgage amortized over 20 years - the best terms yet! But after I submitted yet another loan application, I found out they will only lend based on what we originally paid for the properties back during the recession, not the current appraised value. Even after several years of seasoning! Obviously, that's not going to work.
I'm really getting tired of this. I'm wondering if my partner and I should just split up the assets into our personal names and see if we can get investment loans that way. It seems like other investors are easily getting loan after loan on properties they own personally. Is that the way to go? Any advice would be appreciated.
Originally posted by @Aaron Z.:
Somebody please chime in on why this won't work:
Why not just purchase the properties in your personal name from your LLC? If the bank or Fannie Freddie are going to consider a transfer of ownership a sale and require 6+ months of seasoning, why not just go through the sale process rather than the refi process?
I'm sure I'm missing something...
Funny you should mention this... I thought the same thing. However, I was told that I would need to show where the funds originally came from to purchase the property and prove that they did not originate from me. Or something to that effect. I guess people had tried quit-claiming property to an LLC and then purchasing it back to get around the seasoning period.
Originally posted by @Jay Hurst:
As you pointed out, for a conventional loan you have to have the title in your personal name for six months. That is Fannie/Freddie not lender to lender. That being said, I am not really sure why you are having a hard time finding a lender or broker that can finance a cash out deal inside your LLC with a personal guarantee. That is pretty common and we do it all the time for our borrowers. The rates and terms are not as good as conventional but 30 year amortizations and even 30 year fixed rates do exist.
You would think it wouldn't be that hard, but apparently, it is in my area. Do you happen to lend on properties in Florida?
Matthew B. Your best bet is to wait. banks update their loan protocols every 6-12 months so just have a little faith and hope for 2018.
Your right, you always hear people with success stories using the BRRRR. But people forget to realize the BRRRR is not a universal strategy, it doesn't work in every country, state, county, cities, towns and etc.
Seems your market doesn't work well with the BRRRR or maybe is a late bloomer, in any case waiting is your best option, just stay motivated and hope for the best.
By the way, I got another rejection today from yet another local portfolio lender. I was told they have not done cash-out refi's on investment properties since before the recession. Today, they will consider it but only if the cash pulled out is used to improve the property.
They'll lend me money to buy a boat, an RV, a vacation home, etc. but not for a cash flowing rental property.
I'm also checking into some of the investor specific lenders like Visio Lending. The origination fees are high ($3,500) and the rates are much higher, but at least they're willing to work with me.
I've also received some recommendations for mortgage brokers in my area who are "investor friendly". I believe they are only going to be able to offer Fannie/Freddie loans, but I'm checking into it nonetheless.
Originally posted by @Account Closed:
Matthew B. Your best bet is to wait. banks update their loan protocols every 6-12 months so just have a little faith and hope for 2018.
Your right, you always hear people with success stories using the BRRRR. But people forget to realize the BRRRR is not a universal strategy, it doesn't work in every country, state, county, cities, towns and etc.
Seems your market doesn't work well with the BRRRR or maybe is a late bloomer, in any case waiting is your best option, just stay motivated and hope for the best.
True - I've never seen a BRRRR success story from my area. But, there has to be a way... I've been hoping things will change since 2013.
Could it be that lenders in my area are overly sensitive and reluctant to do these types of loans since it was one of the hardest hit during the recession? Are folks in Arizona and Las Vegas having the same problems? @Account Closed
I have had my properties in multiple LLCs. I recently refinanced in order to leverage a property for another purchase. I had to pull the house out of the LLC and then they would refinance. After the refinance was done, I just did a quit claim and put the house back in the LLC.
The best post in this forum is the one by Mr. Idowu. He has hit the nail on the head. The main reason for an LLC is not organizational purposes, but to do just what the name says; limit your personal liability both financially and legally if things were to go south for any particular property. IMHO, the draw of being able to get cash out by carrying properties in your name, is not worth the risk. That being said, I believe the place you are going to need to look for cash out refi is alternative lending. The reason that financial niche was created is just what you are describing: mainstream and commercial underwriting is simply too strict. You will find higher interest rates there, but that is not the end-all be-all. For example, if a traditional lender takes three months to close on a deal at 4% interest, but an alternative lender closes two deals at two weeks each (and they can) which allows you to flip two houses in that time, which is the better scenario? Someone may say: "the alternative loan is so expensive." Yes but what is your total profit in each scenario by flipping two houses instead of one? Food for thought...
@Matthew B. Don't transfer the property to your name. There is a 6 month title seasoning requirement before you are able to get a Fannie/Freddie loan. What you need to do is find a good mortgage banker that has access to conventional and portfolio financing. They should be able to line you up. Most of the folks who sit in the "local" bank branches don't know crap about investment property financing.
Newbie here:
What does BP recommend and why - A)buying rental properties in own name and transferring them to an LLC , or B) buying properties outright with an LLC?
I understand that rates for commercial for LLCs are higher but want to understand if there are any other factors to consider.
#2 General Landlording & Rental Properties Contributor
"What does BP recommend"
BP should not be recommending anything, it is a personal decision on the part of members. My understanding, based on a survey, is that about 50% of real estate investors use some form of LLC. This means you will not get a consensus on the topic.
Large investors have legitimate need for a LLC due to the fact that they most likely have actual employees. Small investors at best gain psychological reassurance from having a LLC. Likely not mush more.
A far better question to ask and that would be of true value is:
" Who, if anyone, having properties in a LLC have actually directly benefited from the protection it provided in the case of a lawsuit".
A case in support of having a LLC should be supported by actual first hand experience with a lawsuit. Chances are you will not receive any responses due to there being none ( or very few at best). Regrettably there is next to no factual proof of a LLC protecting any better than a investor having adequate insurance coverage. Insurance is your first line of defence regardless of whether you have a LLC or not.
This is primarily why the field is split.
I think many of the members here have some valid point and good ideas about how to proceed to think about this form a different mindset.
Trends
1. Ask around and be specific with different vendors. Another thing is ask someone to review you sales pitch to the lender and see what areas you could improve.
2. LLC vs personal purchase. I would recommend you keep the LLC and if you are dead set on dissolving the entity I would consult with legal and tax advice before you do. The other half doing a personal purchase then Grant Deed or Deed of Trust it to the LLC. You may be able to include language of the purchase to allow you to grant the property to a partner after a specific time.
3. Talk to a leader investor or investor group in your area, not just real estate, and have them review how far you have come and what else you could improve.
4. Review how you got to where you are and see how you got there. Is there something that you could simplify or rework the would increase your flexibility as an organization or entity.
Apparently, the magical portfolio lender mentioned in all of the BRRRR success stories is nowhere to be found in my area. I can't even find a portfolio lender willing to lend on rental properties owned by a person, let alone an LLC.
The way I see it, myself and other investors like me have two options.
Option A: Pay huge origination fees and high interest rates to a company like Visio Lending who caters to investors and knows they have limited options.
Option B: Transfer properties from LLC to my personal name and get 10 Fannie/Freddie loans at the best rates, then figure it out from there. Loans 11+ are still easier when in a personal name.
Regarding Option B, I heard that a lot of people transfer the property to their personal names for the purposes of getting the Fannie/Freddie loan and then transfer the property right back to the LLC. Forgetting about the due on sale clause, doesn't this render the LLC worthless since you've effectively commingled assets and proved to a judge that the LLC is just a shell? It seems to me like you might as well just keep the properties out of the LLC, get some insurance, and call it a day.
Thoughts?
Lima One Captial is an investor friendly bank. They don't mine if your properties are under an LLC. LTV can be between 70 - 80%. The only down side to me is that the rates are between 7% - 10% 30yr fixed depending on your credit score. If the numbers work for you, it could be a good thing.
Originally posted by @Isiah Ferguson:
Lima One Captial is an investor friendly bank. They don't mine if your properties are under an LLC. LTV can be between 70 - 80%. The only down side to me is that the rates are between 7% - 10% 30yr fixed depending on your credit score. If the numbers work for you, it could be a good thing.
I heard of Lima One, but I did some research and I saw a lot of negative feedback. People paying all kinds of money and then being told at the last minute they can't close. Stuff like that.
I'm curious if anyone has re-evaluated leaving properties under an LLC given the new tax law allowing for a 20% profit pass thru deduction on personal taxes from the LLC. Personally, this adds an additional 0.75% operating margin to our rental property annually. It's not a ton, but as profit increases over the years, this will become more and more. Anyone else evaluating this as an addt'l reason to keep in the LLC vs under your personal name?