Can I do BRRRR through an LLC?

Question

I currently have a property that I am in the process of refinancing to pull money out on a deal I’ve been working on for 2 years. I have a partner that owns this building through an LLC we formed. My question is how do we / can we buy another property cash, fix it up, and pull out the money again through our LLC? We are obviously both on the refinance loan and I know banks don’t like to lend to LLC’s on residential properties so how can I use this money with my partner to buy properties and both have ownership? The property would be purchased solely from the refinance money.

River Sava · Answer

Hey Christopher - You absolutely can do this. Sounds like you need a true BRRRR lender to help you out.

Have you looked into DSCR loans at all?

Andrew Postell · Answer

@Robin Simon hmm, many lenders do keep these loans on their balance sheet.  Not all.  Frankly, everything can be sold and monetized but the concept that I want people to understand is that Fannie/Freddie rules we can't be any more lenient on.  It's their money. But in the portfolio space, some lenders can make up whatever rules they want. Which is why there is so much diversity in that space.  DSCR loans are just one type of portfolio based lending.  I mean, you know what I am talking about here.  Maybe we are splitting hairs some but the commercial/portfolio/bank statement/whatever name the give them loan space is significantly more diverse.

Jake Baker · Answer

@Christopher Sweeney

I agree with @Andrew Postell that you can absolutely do this.

Johann Villalvir · Answer

It's not only possible but also recommended because of liability

Robin Simon · Answer

This is really not an accurate description of DSCR Loans - these are not really originated by Banks to be held on Banks' balance sheets - they are almost always going to be from Private Lenders and sold into Non-QM Securitizations (securitized into Mortgage Bonds).  The sometimes higher rate and fees is due to the lack of GSE federal guarantee that conventional loans have versus access to "how much money the bank has access to".

Andrew Postell · Answer

@Christopher Sweeney ok, no problem.  This is why Bigger Pockets is a great place.  You can keep learning here.

Generally speaking there are 2 main types of loans for investors:  “Conventional” and “Portfolio”

Conventional - I'll define these as loans that come from Fannie Mae and Freddie Mac (if you recognize those names).  These loans are all 30 year fixed rate loans.  They have the lowest rates we can find and since they are 30 year fixed...they allow us to cash flow better...which helps us qualify for other loans later. The draw back to these loans is that they are more paperwork heavy than the other "portfolio" types of loans....but if you have ever received a loan on your primary home, it's likely that you will go through the same type of paperwork here with conventional lending.  Fannie/Freddie money = Fannie/Freddie rules.  NOT the bank's own money.  These loan don't let you close in your company name because they are based on you.

Portfolio - I'll define these loans as loans that come from the bank's own "portfolio" of money.  Sometimes referred to as "commercial" loans. Sometimes called "DSCR" loans.  DSCR stands for Debt Service Coverage Ratio - basically it means that the income of the property is what qualifies the loan.  If the debt is covered by the rent, then you are approved.  These loans are a lot more flexible than "conventional" loans.  Bank's money = Bank's rules.  If they like you, then maybe they will lend to you.  But since there is a limit to how much money the bank has access to....their rate will be higher...and often they will have a prepayment penalty...or some other feature that may not be as good as "conventional" but since they are more flexible, they fill in the needs of where a "conventional" loan is lacking.  These will absolutely lend to your company.

Now, how do we know where to find these lenders and which ones are any good?

I wrote an entire post on this, including what questions to ask lenders, that you can find HERE.  The most consistent way is to speak with other investors in your market to know who they use.  You can meet with other investors at some local real estate meetup groups.  Meetup.com is a good resource for those but some of the groups will also post here on Bigger Pockets Marketplace too.  Even facebook might have some good local groups for you.  But post locally for this.  That’s the best bet.

Christopher Sweeney · Answer

So if I buy a property outright and fix it with my own funding (funding is coming from a previous refinance) can I then take my money back out with a DSCR loan? This is the first I’ve ever heard of a DSCR loan @Andrew Postell

Jacob Sherman · Answer

Yes this can absolutely be done via non qm lending products for fix and flip and then refinance via a DSCR loan . What is the scenario looking like ?

Andrew Postell · Answer

@Christopher Sweeney you can 100%, without a doubt, do this.  If you speak with a bank that says they don't like to lend to LLC's then go find a different bank.  There are tons of lenders who lend to companies on residential properties.  That's the whole purpose of a standard DSCR loan.  You can certainly find lending to execute on a property in this fashion.

Let me know if you have any other questions on this.  Certainly here to help.  Thanks!

Can I do BRRRR through an LLC?

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