20-30 Year Fixed Rates for LLCs???

Question

I’m new to Wisconsin RE investing and curious if 20-30 year fixed rates for LLCs are possible. If so, would you be able to message me contact info for these lenders? I’ve read about signing under your name then transferring to the LLC, but would rather avoid this as some mention there might be legal issues. Thank you!

Marcus Auerbach · Answer

People are confusing amortization with fixed interest rate period sometimes.

30 year fixed rate loans are goverment backed, i.e Fannie Mae and Freddie Mac. A retail lender will fund the deal, then bundle these mortgages which all have to meet Fannie or Freddie underwriting guidelines, and sell them back to these gov agencies to recoup their funds and do it all over again. These guidelines require the borrower to be a person (not a legal entity) and you can get up to 4 relativley easy, up to 10 with the right lender and a bit tigher qualifiactions. These loans are amoritized over 30 years and the interest rate is fixed over 30 years.

Commercial loans (with the exception of SBA loans, which are kind of a commercial FHA) are not goverment backed/funded and then bank is lending from it's own portfolio. You are able (often required) to hold the property in an LLC and also sign the loan as the entity, however, typically with a personal guarantee. Only very large deals are asset based without a personal gurantee (usually because the income of the owner would not provide attractive collateral anyway, just not enough..)

Most commercial loans are amortized (paid back) over 20 or 25 years, the rate is fixed for the first 5, 7 or sometimes 10 years. The longer the fixed rate period, the higher the rate, because the bank is taking the risk if rates are rising they are locked in. You also want to know if the loan is a balloon note, meaning you have to pay the balance in full after 5,7,10 years. Pratically the bank will just issue a new loan for new terms at that time, but theoretically they can just refuse to and collect, for example if the bank is in a pinch. As long as the borrower has stong financials no big deal, just refinance with another lender. But there are risks, that a residential consumer loan would not have.

Chris Bruni · Answer

No problem getting 20-25 year loans, but usually fixed period of rate is 5-10 years.

Account Closed · Answer

Yes, you can obtain a 30 Yr Fixed in your LLC name with no seasoning requirements

Matt Kehl · Answer

Thank you for the replies. I dug into two commercial 30 year fixed rate loans that I’ve learned about from others. Pros and cons like usual...you’ll have to get some quotes to find what’s best for you.

1) Origination fees were much higher than 5 year fixed: $2,000 in cash more needed.

2) Prepayment penalties if you sell or refi within first 5 years.

3) Loan rate was 1.2% higher.

Thanks again everyone!

-Matt

Mike L. · Answer

@Matt Kehl

Depends on amount/size of deal, the government ones have minimum size thresholds and are really expensive/complex in terms of fees, inspections etc as a small individual investor. The ones you see online for 30 yr fixed usually have a significant rate premium over a shorter fixed period, so unless your deal is a couple million plus you’re likely looking at doing in your own name on residential side or a commercial note with a 20-30 yr amortization with a 5-10 year fixed term. There are some products out there with auto renew options at a fixed spread but haven’t looked too closely at those.

Peter Falk · Answer

Glad to read there may be some options.  I had generally heard that if originating a loan at purchase that if you used an LLC, lenders viewed it as a commercial loan (so limited to shorter terms, etc) and why people generally would get 1-4 unit loan in their personal name and then switch title to an LLC later (and hope the lender never calls the loan due for changing ownership as long as they continue to get paid).  Obviously if you are getting a larger commercial property, it's irrelevant as you're stuck with commercial loan terms from the start anyway.

Dustin B. · Answer

Nearly every local commercial lender in this area (GB to FDL - possibly further) offers 20 year fixed rate - which I am currently using. Have came across a 25yr ARM that I am trying to work with but nothing has materialized quite yet. I've seen some national ones advertising 30 years but haven't personally talked with them yet.

Luke J Nelsen · Answer

Great question. I’d also like to know about lenders offering this type of product. I personally haven’t come across this yet.

20-30 Year Fixed Rates for LLCs???

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