Using a commercial loan to rent from my LLC

[Daniel Walton]

Hi all, 

I know this situation may seem a bit odd I'll try to piece it together as best as possible. 

Last year I purchased a fixer upper home seller financed on an 18 month balloon, due to be paid back Jan 2024 through my LLC. My intentions were to rehab the home while I lived there, sell the home and repeat the process with the next home. After renovations were finished we have made the decision to refi and stay in the home, however, with our DTI being too high to use a primary home refi product our only current refi option is to use a DSCR loan. We would then rent the property from the LLC(lessor) to me and my wife personally(the tenants) each month. Fair market rent would bring the debt ratio to roughly 1.5. With more than a 100k in equity tied into the property I'm not in a position to leave the equity tied into the property.

My tax accountant has already told me that there is not a tax issue with us personally renting the home from the business but before I approach my commercial lender I've worked with I'm curious on what feedback this group may have. Renting this property to myself seems to obviously blur the lines of what a commercial loan is intended for, however, if the business is being compensated for the home it also seems to be serving its intended purpose? 

Any feedback is appreciated 

[Daniel Walton]

Quote from @Stephanie P.:

Quote from @Daniel Walton:

Hi all, 

I know this situation may seem a bit odd I'll try to piece it together as best as possible. 

Last year I purchased a fixer upper home seller financed on an 18 month balloon, due to be paid back Jan 2024 through my LLC. My intentions were to rehab the home while I lived there, sell the home and repeat the process with the next home. After renovations were finished we have made the decision to refi and stay in the home, however, with our DTI being too high to use a primary home refi product our only current refi option is to use a DSCR loan. We would then rent the property from the LLC(lessor) to me and my wife personally(the tenants) each month. Fair market rent would bring the debt ratio to roughly 1.5. With more than a 100k in equity tied into the property I'm not in a position to leave the equity tied into the property.

My tax accountant has already told me that there is not a tax issue with us personally renting the home from the business but before I approach my commercial lender I've worked with I'm curious on what feedback this group may have. Renting this property to myself seems to obviously blur the lines of what a commercial loan is intended for, however, if the business is being compensated for the home it also seems to be serving its intended purpose? 

Any feedback is appreciated 

You should sell the house. If your DTI is too high to refinance out, take your profit and put it toward another house. I would use FHA and house hack a property that has units like this one. https://www.realtor.com/reales...Live in one and let the other two units pay the rent. 

 Hi Stephanie, 

Thanks for your reply, I'm actually in the middle of renovating a triplex around the corner from the one you linked and considering this option. Thanks for your feedback! 
 https://www.zillow.com/homes/9...