Recommendations for my process - loan to an LLC

[Jim Hern]

I’m looking for advice on efficient steps to take and what I can realistically expect to see in my process to find a local South Florida lender, for lending to an LLC on SFHs for my buy and holds. I’ve had no problem finding good lenders who will lend to me personally...but that’s not what I’m looking for now. I’ve been talking to a few local banks and it’s a mixed bag of responses: in general, they’ve offered very short (5 to 10 year) term loans for higher rates. Not interested in those. So far, it’s been frustrating and time consuming - several dead ends. Perhaps I need to improve my identification process? Thanks in advance for any advice you can provide!

[Kevin Romines]

@Jim Hern I have talked about this very subject many, many times. As an investor it is natural that you would want to buy and hold more than 10 properties. Fannie Mae has a 10 financed property rule that says once you have 10 financed properties, you are no longer eligible to get anymore properties financed via Fannie Mae.

Most people want to hold properties in an LLC for reasons of separation and privacy and risk mitigation. However, they quickly find out that getting financing with favorable terms like you would if you held them personally, doesn't really exist. So they look around and around and around and finally either agree to pay the higher rates and deal with the shorter terms or they hold them personally to get the best financing available?

My suggestion is that you do a combo. of both, however to hold them in an LLC is not part of my recommendation.

To get the best financing available, you need to hold the properties in your personal name. My recommendation would also be to get the highest liability coverage available on your landlord policy and then to follow that up with an appropriately sized umbrella policy considering all your assets, future wages and growth of both. The beauty of the liability policy is that is will also pay all defense costs, which can get very costly, so best to put that expense on the insurance company. 

Once you have reached or just before reaching the 10 financed property rule, I would set up a SUB S corp and prepare to transfer some of the properties that you have had the mortgage on the longest, or the ones with the smallest balances to the SUB S. Then go get commercial or portfolio financing on these from either a local community bank, or credit union or a specialized Non-QM lender that loan to the entity on a longer term, but with higher rates? Yes this is the cost of doing business, and you should factor your business such that your taking these additional costs into account. But that's the business you chose, so until different loan programs come out, that's as good as it gets.

Now, because you have transferred 1 or more properties to the SUB S and even if you were required to sign on the loan as a guarantor, they wont count in Fannie Ma's 10 financed property rule, because they are commercial loans and they are in the name of the entity. Because of this, you have just opened up 1 or more slots available for additional Fannie Mae financing. So plan to use the Fannie Mae loans to buy and hold your properties as long as you can, and age the appropriate one out to the SUB S as you go. 

Rinse, repeat to as many properties as you may ever want to finance?

If you need a referral to a Non-QM lender that can give you financing on longer terms, to your entity, PM and I will get you a list.