How to lower LTV by adding properties to an LLC

Question

I am trying to obtain a HELOC on my primary residence and I'm also trying to obtain a cash-out refi on one of my rental properties (with the intent to reinvest into another property). I currently own 4 single family homes (1 primary residence + 3 rental properties) in California. I am a W-2 wage earner. The titles and mortgages are currently all under my name. So I currently have (2) different LLC's constructed that cover the management of my rental properties (but I don't have the titles or mortgages in the name of the LLC's). One of the LLC's is owned by my wife and I equally. The other LLC is owned by my wife and I at a total of 50% ownership and another husband/wife for the other 50% (this is for only one of the rental properties).

I was told by the HELOC company that my LTV is at 73% (needs to be 40% to 45% to obtain the HELOC) so I am being denied opportunity for the HELOC, as well as being denied the cash-out refi of my rental property. I have been paying the mortgages out of my business bank accounts for each investment property since the original purchase of these properties.

I was told by a mortgage broker (that I'm trying to get approved for the cash-out refi with), that I need to transfer my titles for the rental properties into my LLC's, so that they don't count towards my LTV. The following are my questions regarding this process:

1) Do I need to transfer the loan and the mortgage into the name of the LLC for this to work?

2) If I have to refinance the property to add the mortgage into the name of the LLC, does anyone know where I can get a loan rate at a 30-year fixed rate that is similar to a conforming loan rate for an individual (I'm currently seeing rates of around 4.5% if I refi and cash-out under my name)?

3) Lastly, I am renting the rooms out individually for these homes and only have month to month agreements (not technically leases), so I'm not sure how to "pass the test" when the lender asks me for a copy of my tenant leases (the agreements state on the bottom that they are not leases). I can show that I'm putting money into the bank every month for years on end, but don't really have a LEASE agreement with tenants.

Help on any of the items above would be awesome!

Nicholas Covington · Answer

@Reid S.

A lot of red flags here. First off I would be wary of anyone telling you to transfer your properties with conventional financing into a LLC. You can trigger for the loan(s) to be called. Conventional financing does NOT allows you to have title in the name of a LLC. Do people still do it and possibly not get caught? Yes. Are you open to taking that risk?

Also, LTV has NOTHING to do with homes being in a LLC or not. I am led to believe that maybe he didn't mean LTV which is loan to value of the property. I think the correct term was DTI or debt to income. Holding 4 mortgages on one income does take a lot of money to do even if you have positive cash flow to offset the mortgage because it includes your person debt as well.

If your DTI is at 73% then yes no one will give you anything because you are on paper "cash poor." The broker probably told you to transfer them to a LLC so that the company owns them instead of you, but again this is poor advice because the mortgage show on your credit report regardless and thus will still affect your DTI.

Please find another mortgage broker, granted I could be extremely wrong in this case, but as a mortgage broker myself there are some parts missing to this story or very incorrect advice was given.

If you are looking to take cash out of your properties then I would 1.) Find another mortgage broker 2.) Ask them to locate a DSCR investor program for you which will solely qualify each property based on the grossing rent. Assuming that your rent will cover 100%-125% of the new mortgage you should be ok with this type of program.

Best of luck - Nick

How to lower LTV by adding properties to an LLC

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