Getting a cash out after a BRRR with an LLC attached to property

[Dennis Brooks]

My wife and I did our first BRRR! Bought renovated and rented a 2 family in 12weeks Long Beach ny .Created $230k of equity minus the $70k for renovations that the renters are paying and still hoping to pull a $1000- $1200 cashflow. We are very excited! Can't wait to get our money back and do it again! That's where the problem comes in. During Covid we took a 500k HELOC out of our primary. Used a 150k of our own cash to make the deal happen. We put it in an LLC to protect ourselves which was recommended by our lawyer but the banks don't want to lend to us per a Fannie/Freddie rule about LLCs. Interested to hear similar experiences! How do your get your money back and still protect your self? appreciate any advice! THANK YOU!

[Andrew Postell]

@Dennis Brooks first, congratulations on finding a property.  Very happy for you. Many don't take that first step.  Usually doing something is the best teacher and on this one you are going to learn a lot.  Let's cover this one at a time:

1. Get prequalified - Getting prequalified from a lender will tell you what your payments will be and any challenges that you may face when refinancing.  Always talk with your lender ahead of time since even structuring the transaction better might lead to better terms on your loan.  It might even lead to being able to make a better offer or being more profitable (or telling you if this WON'T be a good deal because of X reason).  Getting prequalifed should be 100% free to do so there's not really any drawback to doing it.

2. The difference in loan types - Generally speaking there are 2 main types of loans for investors: “Conventional” and “Portfolio”

Conventional - I'll define these as loans that come from Fannie Mae and Freddie Mac (if you recognize those names). These loans are all 30 year fixed rate loans. They have the lowest rates we can find and since they are 30 year fixed...they allow us to cash flow better...which helps us qualify for other loans later. The draw back to these loans is that they are more paperwork heavy than the other "portfolio" types of loans....but if you have ever received a loan on your primary home, it's likely that you will go through the same type of paperwork here with conventional lending. Fannie/Freddie money = Fannie/Freddie rules. NOT the bank's own money. These loans don't lend to your LLC but many investors will have the loan lend to them, then switch the property to the LLC after closing.

Portfolio - I'll define these loans as loans that come from the bank's own "portfolio" of money. Sometimes referred to as "commercial" loans. These loans are a lot more flexible than "conventional" loans. Bank's money = Bank's rules. If they like you, then maybe they will lend to you. But since there is a limit to how much money the bank has access to....their rate will be higher...and usually a shorter term. The most common portfolio style loan in Texas is a 20 year adjustable rate loan. These loans are easier to get but the terms are different. These will lend to your LLC/company.

Knowing the difference (and which lenders will write them) will help you get to the right lender faster.

3. Buying with cash - Buying with cash creates a whole SLEW of problems.  The problems are so lengthy I wrote an entire separate post you can read on this subject HERE.  Knowing this information will tell you more about the structuring process on a property like this.

4. Working with investor friendly lenders - how would you like to work with lenders that can lend to an LLC and have no seasoning? Read this post HERE I wrote on the topic.  It's easy to find them if you know where to look.  Having good lenders will make you a better investor.

Anyway, I hope all of this helps in some way.  Feel free to post anything else if you need.  Thanks!