Can you finance a property after purchasing with cash?

Question

Hello! I own a rental property (townhome) that I paid cash for from an inheritance three years ago. The property is in an LLC, and I am the sole owner of the LLC (I'm married); property value about $300K at this point and it is continually rented. I would like to either mortgage the property or set up a HELOC on it to leverage my buying power for additional investment properties (down payments). My questions are: (1) is it possible to get a mortgage on a rental after having already purchased it? I ask because when I contacted Quicken loans in the past, they said they "couldn't make it work". I assume they couldn't offer a competitive rate and make money on the loan, but honestly, I'm not sure as I didn't pursue a detailed answer (I'm steadily employed in good career; my credit score is usually around high 700s-low 800s; have retirement accounts; and equity in my primary residence). (2) Is it possible to get a mortgage if the home is in a (single owner) LLC? (3) Would HELOC be more advantageous than mortgage? I'm thinking there are less fees and rates might be similar? (4) What snags/issues may be foreseen given it's in an LLC, if any? (5) What would you do? Goal is to acquire additional properties (buy and hold/appreciate). Thanks in advance!

Julia Puig Jordan · Answer

Hello Karen,

a cash out refi should not be an issue. As much as i know Texas does allow heloc only on owner occupied homes to max 50% of value, check with your preferred lender in your state.

Cashing out in LLC you'll pay a little more interest, my lender mentioned around 1 point higher than a non LLC.

This will allow you to wash rinse repeat with the Brrrr method to accumulate properties.

I personally do not recommend the big banks but more your smaller, local banks or even better lenders as they only do lending. Go by referral of satisfied clients for example you can ask in this forum for your state.

I personally would do a cash out refi, buy a cosmetic fixer upper in cash, fix up in cash, put tenant in the home, then do a cash out refi again.

That's what i do, i am on property 10 now,

best of luck to you

Trevor Reed · Answer

@Karen Pendergast  This is possible.  To answer your questions in order: 1) You definitely can do a cash out refi on a property you purchased with cash.  Quicken is ... not a good resource :)  2)  Most loans will require you finance the property in your own name, then you can transfer it into your LLC after closing.  You can do a DSCR or other non-QM loan and finance it in a LLC from the beginning but it usually does not have as favorable rates.  3) This is an investment property it appears and HELOCS are not common on non-owner occupied homes - a cash out will probably be your best option here.  4) see #2, and if you do a non-qm loan it's no issue as long as you can prove you own the LLC. 5) Cash out refi while focusing on keeping your property cash flow positive so you can easily keep acquiring properties.

Jeremy D. Flood · Answer

Hi Karen! If you went to Quicken within one year of purchasing they have to follow delayed financing guidelines for a refinance - that COULD be the reason they denied it.

You should have no trouble now, but I would recommend finding a smaller, local lender/broker if possible. A cash out refi will generally have a lower rate than a HELOC and HELOC's may only be available for a primary residence.

As for the LLC, have your attorney right up a quick LOX explaining that you can sign any and all documents for the loan on behalf of your LLC and you should be good to go!

Good luck!

Steven Baca · Answer

@Karen Pendergast Hi Karen, I found this year old post and read your questions as I am in a similar boat with my townhome.  May I ask what option you went with to get your second investment property?  Any snags you can share would be greatly appreciated

Karen Pendergast · Answer

Thank you for the replies...I should have added that I am in North Carolina...(in case location changes the lending practices)....

Andrew Postell · Answer

@Karen Pendergast thanks for posting.  Not sure where all this Texas talk came from but I would answer this with a question - what are you trying to do?  This is a lot like Uber - it works best if you already know your destination.  For example, if you were going to use this property to flip other properties - then a Line of Credit (LOC) would 100% be the preferred product.  A LOC acts like a credit card; you use it, you pay it back, you use it again, pay it back, etc. So when you flip, you use the LOC to buy and rehab the property, sell the property, pay the LOC back, and do it again.  I especially like LOCs because I'm not paying interest on the property if I'm NOT using it.  Meaning, if it takes you 9 months to find a home - that's 9 months that you would be paying interest on a traditional "cash out" mortgage.  That's a big deterrent to me for a mortgage.  And the closing costs would be SIGNIFICANTLY lower on a LOC as compared to a mortgage.  On the other hand, if you were to use the money to buy and HOLD more properties...then I guess it would work the same way.  You buy your next property with a cash offer (that already sounds good to the seller) then you refinance the NEW property into a 30 year loan, and pay back the LOC and keep using it over and over.  Hmmm, and those are the two main areas of discussion in this forum.  So if you were doing something different let us know and maybe I might have a different suggestion.  Hope all of that makes sense.

Julia Puig Jordan · Answer