All Forum Posts by: Britt Clark

Britt, I'm just seeing your post this morning...not sure why it didn't post higher up the forum list but you pose some great questions here. I have no experience with Lima One; I am a former long-time senior banker, my family has been in real estate investing way before me (like 50 years) - and non-recourse is definitely worth paying a higher interest rate. When your business liability is commingled with your personal debt it makes the most simple loan request - like for a car loan - get very "entertaining" as your recourse debt counts as part of your overall personal obligations. Non-recourse is always preferred.

While I'm okay with the higher interest rate for a 30-year fixed term, I would be more concerned about the points charged by the lender. What are the total costs of the mortgage? What might be quoted at a 6-something rate actually is something quite vulgar by the time the points and other fees are disclosed/added in. The lender knows that you won't be holding the mortgage 30-years from now so they want to be paid more upfront. It increases their profitability - but definitely not yours.

Again, non-recourse is a fiscal no-brainer. A higher interest rate to secure non-recourse is worth it. Negotiating other costs - especially points - would be my concern.

Hope this helps...

Patricia - thank you so much for the input!

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Originally posted by @Mark Creason:

@Britt Clark

@Patricia Steiner

Are you saying that Lima will do 30 year terms or 30 year amortizations. A 6.75% 30 year fixed term would be priced accordingly at 6.75% for non-recourse. People have been saying rates are always going up but rates have been at historically low rates for the last 7 years at least. I think rates will stabilize for the next 12 months as the FED has said they are done raising rates for 2019.

Mark

@Mark Creason - it is an actual 30 year term loan. It is not a balloon arrangement that comes due within a 5-10 year term. I was thinking the rate might be good too considering where rates are headed. Most lenders do 5-10 year balloon terms based on a 20-30 year amortization.

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Originally posted by @Jay Hinrichs:

what your seeking does not really exist in the market place.. and your on the right track to limit your loans on rentals that have 5 year calls.. those types of loans sunk a lot of investors last GFC when their loans were called and credit was frozen.. lots of perfectly performing properties were lost.

Jay - Yes, I'm figuring that out as far as the lack of loan options for RE investors in LLCs. I worked in corporate finance for 23 years and it's certainly a different animal than dealing with real estate finance in certain respects. To your point on leverage: I am 100% with you on not over-leveraging. I cringe when I see cheerful posts about getting 75 different loans doing 15% down with balloon payments due in 5 years. Yikes.

I have some capital to deploy and am trying to do it smartly and mitigate risk as I build an RE strategy. I'm not old, but I'm not young either. I can't afford to cripple my modest net worth with a dumb move now.

Thanks for the input and insight.

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Originally posted by @Scott Smith:

I did just post this in another thread you had started, but this is a strategy that can be implemented to access favorable financing options while still getting the benefit of the asset protection from an LLC. Check out this article. You can still buy the property in your own name, but at that point you will transfer it into a Land Trust rather than directly into the LLC. After it is in the Land Trust you can create the LLC as the beneficiary and yourself as the trustee (the manager.) When established in the correct order the Land Trust doesn't trigger the same red flags with the Due on Sale as the direct transfer of a deed into an LLC, and the Land Trust can be created in such a way that your name does not have to appear on public record for the property - you can have your attorney sign for it as a "nominee trustee" until it is formed and then have it pass down to you after the signing is complete.

This is a much more flexible system that works at large, but if you can find a bank that works direct and favorably with an LLC that is generally a bit easier (though your name will still appear on public record for that property.)

This isn't legal advice, just my opinion as an investor.

Thanks Scott. This is great information. I'm going to discuss it with my attorney.

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Originally posted by @Jared McCullough:

Currently working with a lender that is similar to Aj. It is 5.4% with a 5 year reset. I think they offer out to 30 but I am only going with a 10 year so didn't investigate it that much. The loan will be for the LLC with which will allow us to deed the to the LLC. I personally was really hoping to do a HELOC but at the moment the COFR through this bank was the only one I could find willing to loan to an LLC with our current experience (i.e. basically 0 operating history).

Thanks Jared. I really appreciate the information. I'm a little frustrated at not being able to get a decent rate loan within an LLC, even with me signing a personal guarantee that has my assets outside the LLC subject to risk against the loan. I also have great credit.

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Originally posted by @AJ Leman:

Hi Britt,

We finance all our properties through our LLC. We use a local bank that we have a good relationship with. There is less regulation when you go the commercial lending route. However, our bank will not do a 30 year fixed commercial note. Instead, all of ours are 5/25s, so fixed rate for 5 years, then resets to the current market rate.

This is a little riskier, but it has worked out well. Our current rates were in the 4.5% range last year and this year are in the 5.5% range. I think if you want a reasonable 30 year fixed note, it probably will not be through your LLC. This is just my experience and different lenders could be different.

Best of Luck!

@AJ Leman - Thanks for the information. I've also talked to a few of the smaller local banks in my area. The deal they give is a 5 year fixed with a balloon at end of the term. The payments are based on a 20 year amortization schedule. The rates are currently around 5.5%. The thing I don't like about these is you have to re-fi at the end of term and it restarts amortization and you incur more closing costs.

1 Vote

Originally posted by @Nur Al Sharif:

@Pete Bauer wouldn't that be harmful to my personal credit score? Assuming the lender is unwilling to transfer the deed, or has a penalty attached to transferring deed.

Another option I have read about, but that I'm not sure is common practice or viable yet, is initially issuing the loan with a personal guarantee, even though the deed would be under the LLC.

@Nur Al Sharif - I am having the same issues. I want to get my financing within an LLC and it's very difficult to find a reasonable interest rate.

I have worked 25 years to build a modest net worth and will not risk losing it in a frivolous lawsuit by not having the proper legal entity in place that only costs a couple $100 to create and protect my life’s work.

People who advise that an insurance policy alone is enough are not necessarily correct in my opinion. Or, they have a very low or negative net worth and aren’t concerned with the risk of being sued. I understand that perspective. But, it doesn’t apply to my situation and risk tolerance.

Did you ever find a reasonable loan program?

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I've talked with several lenders and have found a few that do have programs to loan within an LLC. The problem is the rates are so high (6.5% -8.5%) for a 30 year fixed that it would require me to get a really super phenomenal deal on a property to meet my target cash-on-cash return of at least 9% and monthly free cash flow of at least $200.

I know many people on here use cheaper rate conventional loans such as FHA and VA and don't have an LLC. I also realize some people use these conforming loans and then move the title to their LLC and roll the dice on the loan being called for violating the typical due on sale clause.

I do not want to take this route. I want to finance within my LLC and am determined to find a loan program that works. I'm ok with buying a house for cash upfront and then re-financing within LLC as well.

Does anyone have advice on how to get a reasonable loan within an LLC? I'm looking for a 30 year fixed and I have great credit and capital to invest.

Thanks

2 Votes

Which city are you asking about? Columbus, OH or Columbus, GA?

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Which city are you asking about? Columbus, OH or Columbus, GA?

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All Forum Posts by: Britt Clark

Britt Clark has started 4 posts and replied 35 times.

Post: Non Recourse Loan Opinion?

Post: Non Recourse Loan Opinion?

Post: How Do You Finance Within an LLC?

Post: How Do You Finance Within an LLC?

Post: How Do You Finance Within an LLC?

Post: How Do You Finance Within an LLC?

Post: Financing within an LLC

Post: How Do You Finance Within an LLC?

Post: Better Cash Flowing Cities Then Memphis or Columbus?

Post: Better Cash Flowing Cities Then Memphis or Columbus?