How do we transition from personal mortgages to LLC?

Question

My partners and I have been financing properties, leveraging personal mortgages all the while prolonging the jump to sending everything through our LLC. Is there any alternative to hard money lenders when looking for a loan through an LLC?

Bob Woelfel · Answer

I second what @Luke Grosskreutz said.  About two years ago I took my one page personal financial statement and walked into 4 different local banks without an appointment.  I asked to speak with a commercial lender.  We discussed what I was trying to do and they reviewed my statement showing where i was financially.  By the end of the day I had 2 of the 4 banks ready to start loaning me money on projects.  If was a fun and beneficial exercise to try.  I always recommend tracking where you are financially as this really helps you when searching for money.  Best of luck.

Luke G. · Answer

Second what @Bob Woelfel said, once you have one or two commercial bankers that are solid, don't chase the extra .25%, especially on smaller deals less than 2-300k.  I now have two primary lenders I work with on all of my deals, they're both aware they always have at least one other competitor, but not 10.  On my last deal I thought one lender was starting to creep up his interest rates further than what they should've been, I simply gave this deal to lender #2.  Lender #1 wasn't upset, if anything it gave him some ammunition when going to his board to get me a great rate on a 1.2 M dollar deal 20 bps less than what he quoted me on my previous one (300k) in order to keep getting my business.  And this is on an 80% LTV, with a 20% seller note.  I'm at a point now where I keep my PFS up to date for my own personal use, but my lender's no longer require it or care, we have a history and they know I'm not buying irresponsibly.

Don't rate shop consistently, once in a while is fine to make sure your lenders are staying with market rates, but don't get greedy with it.  I'm at a point where I don't worry if I'll get approved for financing, I know I will, and that is really quite powerful when it comes to this business and negotiating deals.

@Terence Brown, I simply ask for a mortgage.  I have a LOC on my primary, but it is simply there to have access to quick cash if I have a rehab go over budget or something of the sort.  All of my mortgages are 20 year amort's, balloon's due anywhere from 5-10 years.  I keep significant cash reserves and pump all cash flow back into properties forcing appreciation.  In your case you may be better off going the LOC route as you're a flipper and that would likely give you more flexibility for what you're after.  I on the other hand am strictly buy and hold so you need to do what's best for you!  Good luck man.

Bob Woelfel · Answer

@Terence Brown start talking to smaller banks about commercial lending.  I was able to refinance a rehab with them and have done several BRRR's using my small bank loaning to my LLC.  We were able to do this without really having a 2 year history, although I did have a well paying job at the time.  I was tired of rate chasing and wanted to establish a relationship with someone.  The flexibility they offer has been very helpful.

Bob Woelfel · Answer

@Terence Brown  I was actually able to get the LOC I mentioned in my first post before I talked to these other banks.  The point of going into these other banks was to establish another relationship with a different bank because I was investing in different areas.  Plus, I wanted to have more options.

I will say though, when you find a good bank and you have a good relationship with them don't make it difficult for them to earn your business.  It's a mutually beneficial relationship.  I stopped rate chasing a few years ago and I've been able to get much further because of it.  My bank values what I bring and they have moved a few things around for me multiple times when I needed to make transactions happen.  If they don't know you or have a history of doing business with you then it's hard to go ask a new bank for a bunch of favors.  Good luck.

Terence Brown · Answer

@Luke Grosskreutz your the man. The long term for us is to be where you are, but we are going with flipping up front because its worked so far, and we are trying to get credibility for our business as well as grow our bank account. Man, this insight is more valuable than you know. Both you and @Bob Woelfel. Thank you both!

Luke G. · Answer

Your local lender's/small banks will be your best bet.  I only own my personal home in my personal name.  The rest are in LLC's, most will require a personal guarantee on the loan.  It also will open up a LOT more flexibility with financing deals.  I have 3-4 banks that will go 80% LTV, even with a 20% note of seller financing.  Blast some e-mails, most will be no's, but some will be...maybe.  Being organized and having a strong personal financial statement will help as well.

Terence Brown · Answer

@Tyler Mullen this is awesome man. Really appreciate this.

Tyler Mullen · Answer

@Terence Brown

Meet with some smaller banks in your area and share your plans with their in house commercial banker.  Ask them what you can do to make it easier to get the LLC qualified as the borrower.  I got worse terms than a individual loan sure but starting the long term relationship now is worth it for the future business.

One bonus was the commercial loan had no “seasoning” requirement because I bought the property for cash, then went to them for the loan.

Banks under 5-10B in market value.  I found one without too much trouble, my banker actually contacts me all the time to check in with me and asking if I’m ready to do another loan.

Happy to PM deeper details.

Terence Brown · Answer

@Bob Woelfel this is beautiful man. Seriously cant thank you enough.

Terence Brown · Answer

@Stephanie P. This is amazing! Thank you so much!

How do we transition from personal mortgages to LLC?

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