Secondary Market Loan Limits with Corp or S Corp

[Aaron Nelson]

I've heard from a few people that it is possible to surpass the 10 single family property loan limit if you put your properties into a corporation or s corp which holds 10 or less. I can't find anything to dispute this online - only that holding properties in an LLC does not shield you from that 10 property personal limit.

Is this true? Can anyone shed some light on this?

[Albert Bui]

Originally posted by @Aaron Nelson:

Thanks Andrew and Wayne! I was hoping to be able to deed over the properties into the  S Corp, but it doesn't sound like that will be an option. 

I may just have to play the game and move into multi family!

HI Aaron,

I have successfully implemented these strategies of exceeding the 10 financed properties limit via utilizing an entity to operate/hold your properties.

The guidelines for this have changed over time where you needed to have both the title and the note/mortgage in the name of your entity.

What some investors do is they will max out on their 10 fannie/freddie loans and then they will package them up and go to a local bank like lone star bank in TX and get a commercial note at 20-25yr fixed to refi all 10 into their LLC and remove the liability off their personal name/credit. This would in effect rinse out the 10 financed properties (1-4 residential) from your name and allow you to obtain another 10.

Its a "if or maybe," area of the guidelines to most lenders because most have never had a borrower who had so many properties and also because each underwriter may view the guidelines differently than the prior or next.

To avoid this ambiguity, its important to package up your file correctly upfront with explanations, supporting documents, snippets from guidelines stating "what constitutes a financed property and what doesn't."

This will give your file the highest chances of implementing this strategy.

The other X-factor is the vocabulary used with these local Texas banks that will offer commercial business financing for your rentals. If you talk their language, IE debt coverage, net worth, cash flow, global cashflow, and can quickly grasp their lingo they will see you an experience investor and will be more app to give you financing where your personal name will not be on the note. Sometimes if your LTV is too high you may have to be on the note till it reaches 60% or lower it just depends on your relationship at each of these smaller banks its like the wild west when it comes to small community banks or credit unions.

My favorite are smaller credit unions as CU's typically have no pre payment penalties which allows a RE investor to be more flexible when buying properties, refinancing, moving funds around, and doing new projects. This flexibility is nice as opposed to being locked into a 5 -7 year fixed term note with a huge pre pay or balloon payment.

Best of luck in your RE