BRRRR METHOD CASH OUT REFI-ARM VS. FIXED RATE

[Ashley Glinka]

Hi,

First time poster here. My husband I recently purchased our first duplex using the BRRRR method. We purchased through our LLC and paid cash. We've been talking with different banks. Do all cash out refi's in an LLC have some sort of ARM in the terms or is it possible to do a cash out refi 30 year fixed? One of the banks is quoting us 75% LTV with 10/6 ARM...locked for 10 years, 30 year amortization.

 What have you found to be the most challenging when purchasing and refi under an LLC? Anything I should know of ahead of time as we work through this process?  Thanks! Looking forward to feedback and further discussion.

[Kevin Sobilo]

@Ashley Glinka, You are asking a good question.

So, when you are getting a loan from a bank with your LLC as the borrower that will be a portfolio loan for the bank. Its a loan they will make and keep in their "portfolio" unlike the Fannie/Freddie conventional conforming loans you probably used to buy your primary residence where the bank resells those loans.

Since the bank is lending their own money and keeping the loan they can use whatever terms they like (to an extent). An adjustable rate mortgage with 75% LTV is probably one of the most common scenarios. However, the details can vary lock in period, adjustment cycle, LTV, etc can all vary from lender to lender.

Also, some terms are NEGOTIABLE! Since these loans are loans the bank keeps they have discretion with them. So, if you ask for slightly different terms they will often consider it. Especially if you have other loans with them and they know you are going to be a good borrower because of the track record. So, ask for a different lock period if that makes a difference to you.

Also ask their policy on loan modifications. One of the lenders I use has been willing to modify loans. After I took a loan out a few years ago, rates dropped a year later but I wasn't set to the rate to adjust for 3 more year. For a $250 fee, they modified my loan to adjust to the new rate 2 years early saving me quite a bit of interest.

So, keep in mind if you work with a lender over and over the relationship actually does make a difference.

You may find a lender who will do 20, 25, or even 30 year fixed rate loans, but those are much less common. They may also allow you to borrow in your own name even if the property is owned by the LLC.

If you do have the LLC as the borrow, you can also expect that you will personally have to guarantee the debt. Its basically like co-signing for the loan. The loan in that case won't appear on your credit report because the LLC is the actual borrower, not you personally.