All Forum Posts by: Edward B.

The big banks (WF, Chase, BofA, etc.) do business and commercial loans but focus on much larger clients. You are unlikely to get that type of loan from them. If you want to do a loan directly to your LLC then you should pursue that through local/regional banks.

If you do not have time to pursue other loan options right now I would just close in your name and either go with increased insurance or pursue options to move the properties into the LLC later. These will all involve refinancing or risking having the loan called, though. Putting them into the LLC is mostly and asset protection play and maybe an estate move so, as recommended above, consult with some professionals and make sure it is worth the added expense and hassle.

@Dan Borecki,

Really it boils down to shopping around for the best rate and terms. I would pull out as much as possible even if it is at a higher rate. If you plan on staying local and investing in your area I would consider slightly less favorable rate or terms in the name of establishing a relationship with a local bank. That relationship could be worth significantly more than .25% on the rate. But beyond that I have always gone with whoever offered the best rate and terms.

@Claudio Golia,

There are definitely people who will disagree with me here so you are going to need to do the research and ultimately figure out what is best for you.

Personally, I max all of my retirement and tax advantaged accounts first. The main reason for this is that you are restricted to how much you can put into these investment vehicles each year. So if you get a financial windfall (inheritance, killer investment, win the lottery, etc.) you can always pay off debt or dump into an investment, but you can't make up contributions to your tax advantaged accounts that you didn't make in previous years. Taxes are likely to be your single greatest expense throughout your lifetime so anything you can do to minimize them is to your advantage.

After that, look to ways to take advantage of those accounts. Explore the possibilities of a self directed IRA. Look into opportunities to take out loans against your 401k. Your 401k may have a program to take loans against it (a la the TSP mentioned above), but if not it is a liquid asset that some lenders will accept as collateral for a loan.

These questions have been asked before and I saw a guy celebrating cashing out his 401k, paying the taxes and penalties, and now making a killing in real estate. Two problems with that. One, if this was 2007 he may seriously...seriously, regret having done that in a year or so. Two, if he had transferred that money to a SD IRA and figured out how to do his investing there, he could be making all that money tax free. Instead, he reduced his investable capital by paying the taxes and penalties, and the better he does, the more he pays in taxes. That takes a huge chunk out of his reinvestable income.

There are circumstances where it makes sense not to maximize these accounts but I would explore every other possibility first. Tax advantaged accounts are hard to beat when compounded over a lifetime.

Your only recourse would be with the Broker and I think you would be hard pressed to get anything out of that. It's like trying to sue a property manager for doing a bad job, it is very hard to come out on top there unless you can prove fraud or something.

I would write it off and find another broker. Someone who specializes in the type of property you are trying to buy (HUD, REO, etc). As you have just learned these transactions are complicated and there is no room for error.

I had the same thing happen to me, but the property just went back to auction and I was able to win it again. I still blew my top though because it was a screaming good deal that I almost lost.

Good luck,

Ed

@Maggie Tasseron,

I've spent some time in your area too. Lots of windmills.

I did the same thing. When USAA, of all people, froze my wife's HELOC I maxed out my other three and deployed the funds. Since my interest rates are only at prime give or take half a point I didn't want to get locked out of them. I almost stopped doing business with USAA over that. They froze it the month after I paid it off and I had plans for that money. If I'd known they were going to do that I would have paid down other debt instead. Alas, I understand their position, I just don't agree with it. They used to look at those things on a case by case basis and focus on doing what was right for their customer. They are not the same company anymore, though. They just froze my HELOC when I refinanced. Wouldn't let me refinance without agreeing to the freeze. Irks the crap out of me, but I maxed it a long time ago and at 3.4% won't be paying it off any time soon. That money is earning much more than that in the properties I bought and excess cash is better suited to reinvestment or other higher interest debt.

I have a HELOC with Nexity, now AloStar, bank that they froze, but I had it maxed at 3.25%. And I have a HELOC with WF at prime as well that I thought they froze but when I refiannced that property earlier this year they said that not only was it not frozen but the draw was ten years longer than I thought. Good to know. All of those where opened before the crash. They cost nothing to open, had incredible rates, high LTVs, and no annual fees. I haven't seen deals like that anymore. My last one was in 2010 with Fulton Bank. Ironically, their mortgage arm forced me to buy a property, duplex, that my wife was living in as an investment property, but their banking arm allowed me to get a HELOC as though it was a primary residence. They went to 90% LTV but at 5.75%. I agree with @Jeff Pollack, take as much as they will give you. Having access to an additional $30k of my equity has already paid off, vice getting 1%-1.5% less on the rate. Just be smart how you use the money. I did have to pay $400-$500 for that line but it is more than worth it for access to the funds. No annual fee.

I was shopping for another HELOC on a primary residence in 2013 but the landscape had changed dramatically. I bought a property free and clear, HUD foreclosure, and intended to just get a HELOC on it but quickly realized that wasn't possible anymore. Oops. I am in the process of including that with some other properties to get a portfolio loan, thereby pulling some money out and getting two more mortgages out of my name.

@Brandon Hall, Thank you for the clarification. I have only used my HELOCs for RE investing so while I am sure it came up early on with my CPA, I did not remember that distinction.

@Kevin Carraway,

If you form your LLC in IL you will have to register it to do business in MO anyway and will effectively be paying for two state's annual fees. It is generally better to form the LLC in the state where the property is located. There is also no guarantee that your state will recognize another state's rules for Series LLCs. The Series LLC is largely untested compared to regular LLCs so the risk that you are not truly protected is greater, especially in a state that does not have it's own regulations regarding them.

If you are forming the LLC for asset protection purposes, I would do it based on equity, not on price points. If you have five $100k houses that you own free and clear then you have $500k at risk. If you have a $1.1M multi-family with $1M in loans against it, you only have $100k at risk.

You have to weigh your risk tolerance against the cost to set up and maintain your LLC strategy.

@Daria B.,

That's weird because I copied that link from another post. Oh well.

If you have an option to buy then the owner cannot refuse to sell to you. If done properly and legally you have purchased the "right" but not the "obligation" to purchase the property at the stated price. If you choose to exercise your right, they cannot legally refuse.

@Patricia Gemming,

Definitely research this more and probably talk to an RE attorney who knows about these things in your area. I would not try to do a lease option on your own.

I don't know how things work in NY, I assume the property is in NY, but I have read that including a portion of the lease to go toward the down payment has allowed tenants to argue that they have an interest in the property and then the owner had to foreclose, yes FORECLOSE, on them to get them out. Definitely keep the lease and the option to buy separate.

@Daria B.,

Motivated seller and/or tired landlord. Didn't know what they were getting into, ran the property into the ground because they don't know how to manage, or how to manage property managers. Maybe they inherited the property and don't know what to do with it.

Bottom line - they just want out. Their phone is blowing up with tenant and maintenance problems. Expenses are piling up. They might be in danger of losing the property to foreclosure. Then you swoop in to save the day.

You throw them some money for an option to buy at a sweetheart price down the road and for merely leasing the property to you for a steady monthly income, you will take all of there problems away. They have some money in their pocket and steady income and you handle the headaches.

Then you begin the work of turning the property around. Since you have the option to buy for your sweetheart price you will reap any financial reward for your hard work and expertise.

At least, that is the ideal scenario. It is much more difficult in execution.

It's not any different than someone selling their house to a wholesaler or fix and flipper. They don't have the where-with-all or expertise or means to do that kind of work themselves. So they trade their equity to be done with it.

I concur with @Chris Field, portfolio loans can be easier to get, they are just harder to find. Once you find someone willing to do them, though, investors tend to have a better experience with qualifying.