All Forum Posts by: Stephen McGrath

Hello BP,

I am in the process of closing on a commercial refi loan on a property. When i had bought the property cash, i had formed an LLC but ended up not using it as i didn't want to roll the property into an LLC and then have issues with getting a refi. As this is a commercial lender they are telling me i can put this into an LLC. At this point I'm mainly looking at it for tax advantages and if i can shield my self from acquiring the personal debt. If anyone on here, preferable an accountant can shed some light on this that would be great. I would also like to know if i set up the LLC correctly in the first place and if changes can be made if not?

- I read that if i have a personal guarantee to the debt, than it would show on my debt to income ratio? assuming this is true, is this typically a requirement of commercial lenders to have that guarantee or is the house as collateral enough? If there is a personal guarantee to the debt can you still build credit under the LLC?

- If this is a single member LLC taxed through my personal return would this save taxes by avoiding double taxation? how exactly do the tax benefits work if at all with a single member LLC

- in this situation, would both the property and the loan have to be under the LLC?

I know these may be novice questions but any help would be appreciated, thanks BP!

Thanks to everyone who responded, still a newbie with how all of this breaks down so your input is appreciated! with the little knowledge i know on the subject I thought i could be useful to get a discussion going on the topic.

Hey @Eric James

That's actually the plan, i will likely put the next one under an LLC and leave this one in my name. This would be for "protection" not that the LLC is un penetrable, but also so i don't carry all the debt under my personal name which i would imagine could affect lending opportunities.

@Wayne Brooks

I thought the fee was overpriced myself, but that's just the first asset protection attorney i spoke with. They wanted 5000 to set it up, included in that they would roll i believe 3 properties into land trusts, and create the series LLC. I was not actually aware that that a Fannie Mae loan would now allow that, so thank you for the information!

@Don Konipol

Thank you for the information, that makes a lot of sense. So essentially, i am not protected against that clause if they really wanted to get out of the loan even with a sophisticated landtrust/LLC in place. Would you recommend to go for commercial lenders or now Fannie Mae loans as Wayne mentioned for all future investments?

@Peter M.

Hey Peter, thanks for the info. That sounds along the lines of what I've heard, quite frankly it seems scary to set it up myself but in due time i will have to explore the option that makes most sense. Currently i only have my one duplex, so as far as shielding outside assets there are none to protect. But as i gear up to gain my next property, asset protect is coming to mind so i wanted to be prepared. As a side note Peter, I've actually been looking at Dallas/Ft Worth as my main target area for my next purchase, i would love to get any advice you have, if willing on the area.

@Nick Belsky

Hey Nick, excuse my ignorance but i actually don't know if its a 5/5 ARM. I was told typically the term of the loan is 20 years adjusting every 5 but they could increase the term to 30 years, i will have to verify that. The floor is the starting rate of 4.2 i believe it was, and as far as Caps, again i have to confirm that. I would love to hear the products you have to offer, i will DM you.

Thank you,

Stephen

Hello everyone,

I am a new investor with one duplex under my belt and i have scrubbed the forums for information on how to avoid the due on sale clause, for those of you that don't know, this is when you roll the title of a property into an LLC effectively changing ownership. The bank then holds the right to require the loan balance due. I've heard that it "rarely happens" all over the internet but that doesn't sound like a risk I'm willing to take. Some suggest that when interest rate go back up that it could cause this to happen to more investors as the banks will want out of those low interest loans.

I am not a financial expert by any means but in my research I've found a few alternatives that were not easy for me to find:

This "due on sale" clause seems to mainly apply to government backed loans (fannie and freddie). If you get a commercial loan, they don't care if its under an LLC! (I'm in the process of getting a commercial real estate loan and verified this)

Another work around, i spoke with a lawyer for a paid hour consultation. How they recommend and offer to set up (for 5000k one time, then 550 per house added) is to get the property under, or roll it into a land trust. The land trust can then make your LLC the beneficiary. This LCC would then be part of a Series LLC which is sort of like a hub and spoke model with a master LLC (I'm in TX, Series LLC's Are not offered in every state). I was told by the attorney that you are protected under "garn-st. germain act" in which the bank would not be able to call the note due if the property was moved to a trust. The thing i did not like about a land trust is that you need to make someone else the trustee. I have a problem with this because i don't trust items like a cash flowing property with someone else. I was told that the attorney would be the trustee while setting it up than assign the trustee as myself. You also get anonymity with have this type of asset protection in place.

I am not an attorney or a financial expert and advisor so please consult professionals on these matters, i just hope that maybe this could save someone some time and point them in the right direction. 

Feel free to message me with any questions or comment on the thread

To update the thread and anyone interested, i have talked with probably 20 banks/credit unions/Hard Money lenders. I have found a few options for myself and anyone unqualified for a government back fannie/freddie loan. So as far as hard money lenders go, I've been quoted as low as 7% interest (this changes daily), and they would even use the equity in my first home for the down payment on my 2nd property, this however is a last resort for me as i would prefer less risky financing. The upside is that they provide fast closing and interest only payments, which would keep the cash flow on the first property strong. What i found to be the preferable option is a commercial loan. A few credit unions entertained this idea but some had high interest rates, close to 5% and up even, and 10-15 year amortization (this greatly lowers the cash flow on the property), another road bump is that some denied it as the loan size was too small. After all my research i found a local bank that is offering me up to 30 year amortization commercial loan at an adjustable rate interest that changes every 5 years, starting at 4.2%. They are also offering 80% LTV, and there is no seasoning period (all the other banks and credit unions will only give around 70% of purchase price unless owned for 2 years). Right now i am awaiting the appraisal, i will update with my results.

Thanks Chris, yeah I'm looking into running with a Heloc. The HML option was actually the original plan, i was trying to save on points and interest even though it i was told i would have been able to refinance after 45 days. I didn't expect this bump in the road, lesson learned.

Hello BP Community,

I have a little issue here. I recently sold a rental property that was not cash flowing and purchased a duplex in Texas. The idea was purchase cash, then cash out refinance with the attempts to pull off the BRRR strategy or close too it. My issue is that my credit score is still on the rise, but more importantly, i had multiple late payments on my previous mortgage and now I'm told i need to wait a year to cash out from the last late payment. Does anyone have any experience in ways around this? or using non conforming loans? any advice would be greatly appreciated as i would have to otherwise wait 8 months at this point to refinance. Thanks in advanced.

Stephen