cash out Refinancing problems with LLC

[Daniel Levine]

I am struggling to refinance my triplex because it is in an llc. I own the triplex out right and believe it will appraise around 230,000. It rents for 2275.00 and the NOI is around 1100.00 per month. I'm looking for 130,000k to get my original investment out and to continue investing. Banks are reluctant because of the llc. I'm considering a personal guaranty but would rather not go that way. Any suggestions?

I recently saw a post about someone purchasing the houses in their name then after the refinancing they changed the deed into a trust. That might work on my next investment. Does anyone have experience with this as well? 

[Jeff Copeland]

As already stated, conventional residential loan products are for individuals, not business entities. 

Legally and ethically, you have two options:

1. Keep property in LLC's name, and use commercial financing options (which are not at all competitive or comparable to residential loan products).

2. Take advantage of (still historically low) residential interest rates and 30-year fixed rate financing, and transfer the property into your own name. This is very simple (just a one page quit claim deed added to the already mountainous pile of loan paperwork you'll be signing).

When using #2 (which I personally think is a no-brainer - use as much conventional residential financing as the banks will give you, then start using commercial financing or other creative solutions), the key is to carry very good liability insurance. 

What many people don't realize is that liability insurance not only insures you for losses up to your specified policy limits, your insurance carrier also has a "duty to defend". Meaning, If I claim I stubbed my toe on the door step of your rental property and I'm owed $5 million for the loss of my pinky toe, your insurance carrier steps in and says "Hell no, we'll give you $50 to cover your copay at the walk in clinic...Have a nice day and be on your way." And they will go so far as to fight that battle in court (or settle) on your behalf. So solid liability insurance is better protection that most people realize.

And in any case, how often have you heard of a residential landlord being sued (and losing) for some type of premises liability? I'm in the industry, and I don't personally know of a single case. I know it happens...but I don't think it's nearly as common as some people fear.

Finally, all the talk about "just refinance in your name, and then immediately put the property back in your LLC's name" is not legal or ethical, and every mortgage note has a due on sale clause which would allow the lender to call your note due immediately. Maybe you'll get away with it for a few years. But what about 10 years from now if mortgage rates are at 9% - do you think your lender might have some incentive to call your note then? Best case - you just refinanced out of your 4.25% 30-year fixed loan at your new rate of 9%. It's a risk you need to be aware of if you try to cheat the system.

Hope that helps!