New LLC with Lack of History - Which Type of Lender?

[Daniel Brewer]

Hey everyone,

I've been researching the BRRRR game and all that it entails over the past year or so. My partners and I have cash ready to purchase and rehab our first property. However, we want to get pre-approved for the refi loan before we do anything so we do not face any issues later down the road (after the rehab). Unfortunately, we are facing a bit of an issue with conventional lenders. Many of these lenders require history (such as business tax returns and income from business operations). Considering that we just started our LLC only a few months ago and are fresh out of college, we don't have the necessary history to get a loan when it's time for us to refinance. Does anyone have any recommendations on what to do? I want to get completely pre-approved before we purchase or rehab anything.

Thanks.

[Kevin Sobilo]

Go to local community banks and credit unions. You will be looking for portfolio loans not conventional conforming loans. You may need to speak to the commercial lending people for that (even though your property may be residential). You and the other owners/members will have to personally guarantee the loan even though the debt is in the LLCs name.

Typical terms for these kinds of loans are 75-80% LTV, 15-20 year amortization and term, adjustable rate with 3-5 year lock/reset periods, and an interest rate of Prime plus .5 to 1.5%.

These kinds of loans should be readily available, but they don't typically do "pre-approvals" because their underwriting isn't based on a Fannie/Freddie loan product.

I suggest speaking with them about what you are doing and also to prepare a PFS (personal financial statement) for each owner/member. That is basically a financial resume that will show the lender who they are dealing with. This kind of lending is much more relationship based. They are lending their own money to invest in what you are doing unlike a conventional loan they would just resell on the secondary market.