Investor · Scottsdale, AZ · Member since 2016 · 46 posts · 12 votes
Hi Everyone,
I usually buy my properties cash up-front. However I want to do a cash-out refinance a year later. Should I be buying properties under an LLC or using my name so that I can get loans on the property as an individual?
Depending on how the bank underwrites, having a signed lease will allow you to use the rent revenue as income in the DTI. The LLC vs personal debate is long and well-documented on BP. One type on the search bar will give you tons of fodder, so no need to recreate it here. The 10 loan limit is related to the secondary market, so if you have more than ten personal loans, you at that point may want the LLC to get business / commercial terms as opposed to personal / residential terms. However, as you note, a portfolio lender who will retain the loan on their books as opposed to reselling it will be able to extend past the 10 loan cap. DTI and other financials will still be at play, I think, but best to get the lenders policy on those loans directly from them.
Bridgeville, PA · Member since 2013 · 395 posts · 105 votes
8y
@Bon Osonwanne i feel that buying properties in your personal name is not a good idea. Talk with your RE attorney.
If yu are buying in an LLC cash and then one year later refinancing then there should be no issue. We do it here in Pittsburgh all the time. As long as your finances are strong and the property is rented and cash flows that is a great long term plan.
Investor · Scottsdale, AZ · Member since 2016 · 46 posts · 12 votes
8y
@Chase Gochnauer OK, I'm hearing from my lender within 6 months its a technical re-fi and can only pull out 75% of how much you paid in cash. Whereas after a year, you can do an appraisal, with possibly higher value.
Investor · Des Moines, IA · Member since 2015 · 380 posts · 201 votes
8y
@Bon Osonwanne Go chat with another lender. Every local lender has their own requirements, and are sometimes negotiable. Some has to do with you as a borrower too, I'm a strong borrower due to another business I have.
I did probably 30-40 single family over the last couple years and refinanced them all at 75-80% of appraised value, typically less than 6 months.
San Antonio, TX · Member since 2017 · 81 posts · 31 votes
8y
@Bon Osonwanne The LLC vs personal name is one of the most recurring topics on these forums. One search will net hundreds of threads about the debate. So is length of term for re-finance which is called "seasoning." If you have paid entirely in cash, look into the Fannie Mae delayed financing exception, which should let you get an appraisal and pull the cash you paid to buy the property (none of rehab or holding costs) immediately. If you need to get to a full 75% of ARV to recoup rehab expenses, wait the 6 months. Some banks may want a full year because of their overlays (bank-specific rules). If they tell you that, call another bank.
Investor · Scottsdale, AZ · Member since 2016 · 46 posts · 12 votes
8y
@Chase Gochnauer So you use your LLC to buy and to cash-out refinance? Lender told me max is 10 loans on individual name. Are you doing blanket loans on your portfolio, vs. individual properties? How many loans do you have? (More than 10? Under LLC?)
O Fallon, MO · Member since 2017 · 59 posts · 21 votes
8y
This is great info here. @Chase Gochnauer I'm curious as I have a property I plan on rehabbing shortly, renting, and refinancing. Are the properties you've refinanced rentals? If so, do they have to be occupied before the lender will cash out? @Neil Sinha any thoughts on this as well?
Sorry @Bon Osonwanne I have mine under my name now so I can't contribute much to the LLC debate yet. However, just in my limited knowledge and an attempt to contribute I think the general rule around is 10 loans to a name and then you'd need a portfolio lender to be doing anything past that. So if I understand it right, at that point you're no longer borrowing against your name, income, DTI. It's against your real assets essentially. That may be over simplified and completely wrong but I hope someone will correct me if so still trying to learn!
Depending on how the bank underwrites, having a signed lease will allow you to use the rent revenue as income in the DTI. The LLC vs personal debate is long and well-documented on BP. One type on the search bar will give you tons of fodder, so no need to recreate it here. The 10 loan limit is related to the secondary market, so if you have more than ten personal loans, you at that point may want the LLC to get business / commercial terms as opposed to personal / residential terms. However, as you note, a portfolio lender who will retain the loan on their books as opposed to reselling it will be able to extend past the 10 loan cap. DTI and other financials will still be at play, I think, but best to get the lenders policy on those loans directly from them.
@Chase Gochnauer So you use your LLC to buy and to cash-out refinance? Lender told me max is 10 loans on individual name. Are you doing blanket loans on your portfolio, vs. individual properties? How many loans do you have? (More than 10? Under LLC?)
As Neil said, the 10 loan limit is secondary market loans. So loans that would be Fannie Mae backed for example. If you're working with a local lender, there is no limitation.
I have probably 60 loans, 5 or so in my personal name that are secondary market loans, and the remainder LLC. The secondary market loans are 30 year amortization and fixed rate for the duration of the loan. Most local lenders are something like 20-25 year amortizaton and the rate is only fixed for 5-7 years. But that is very lender specific.
This is great info here. @Chase Gochnauer I'm curious as I have a property I plan on rehabbing shortly, renting, and refinancing. Are the properties you've refinanced rentals? If so, do they have to be occupied before the lender will cash out? @Neil Sinha any thoughts on this as well?
Sorry @Bon Osonwanne I have mine under my name now so I can't contribute much to the LLC debate yet. However, just in my limited knowledge and an attempt to contribute I think the general rule around is 10 loans to a name and then you'd need a portfolio lender to be doing anything past that. So if I understand it right, at that point you're no longer borrowing against your name, income, DTI. It's against your real assets essentially. That may be over simplified and completely wrong but I hope someone will correct me if so still trying to learn!
In my personal situation, no, I don't need to have it occupied before the lender will cash out. But I do not need the income for my DTI requirements.
Lender · Glenview IL- CDLP NMLS#230554 · Member since 2015 · 2k+ posts · 747 votes
8y
@Bon Osonwanne The title should be seasoned on your name for 6 month which will in you loan scenario so both way will be fine to cash out on individual name.
@Chase Gochnauer So you use your LLC to buy and to cash-out refinance? Lender told me max is 10 loans on individual name. Are you doing blanket loans on your portfolio, vs. individual properties? How many loans do you have? (More than 10? Under LLC?)
As Neil said, the 10 loan limit is secondary market loans. So loans that would be Fannie Mae backed for example. If you're working with a local lender, there is no limitation.
I have probably 60 loans, 5 or so in my personal name that are secondary market loans, and the remainder LLC. The secondary market loans are 30 year amortization and fixed rate for the duration of the loan. Most local lenders are something like 20-25 year amortizaton and the rate is only fixed for 5-7 years. But that is very lender specific.
@Chase Gochnauer Can you recommend your portfolio lender? Do they work across state lines? Or how do I go about finding one for more than 10 loans?
@Chase Gochnauer Can you recommend your portfolio lender? Do they work across state lines? Or how do I go about finding one for more than 10 loans?
Hello Bon, mine do not work across state lines, they will not even cover the entire state of Iowa.
Basically, in your town, just find the couple of local banks that only have 1-3 branches and go in and chat with them. They keep the loans in house, and only invest in their local community. You still need to qualify of course, but it's good to have those local relationships. Occasionally they may know of deals as well being in the local real estate industry.