So I’m in the market to cash-out refi one of my finished rehabs. Purchased for $25k cash with two 3bd apts renting at $525 each. ARV is estimated around $55-60k. The cash out refi will pay off a HML and cover the cost for rehab on a newer property. Here’s the kicker:
I can easily qualify for a mortgage under my own name. Not a problem as my 9-5 income and income from my other properties is substantial. The issue is that I can’t find a lender who will allow the title to stay in the LLC’s name and alow me to sign for the mortgage. I’m a bit confused as I don’t understand what the problem is. I’m agreeing to sign for the mortgage and take full responsibility but I want the Deed to reflect my LLC.
Is anyone else running across this? Are all of the lenders really getting THIS stringent? I follow the economic climate pretty closely on both a local and global level but this seems like a bit much. My main concern is if this continues will I end up with a ton of properties in my personal name? And in essence doesn’t this eliminate the opportunity for a small business to create business credit in order to grow? Outside of Business Credit Cards of course…
Any info is apprecaited and thanks for the help in advance.
We’ve never had a problem putting title in our LLC’s name as long as we personally guarantee the loan. I can see the bank not loaning to the LLC without a personal guarantee, but you should be able to title it w/ the LLC. This has been our experience over the past 3+ years. Last deal was in September this year so we’re pretty current on things here.
I’m honestly pretty suprised at what the banks have been telling me in relation to this. One loan officer just bluntly stated “the days of holding title in an LLC are over!”. I thought that was a bit extreme and after asking what difference it made as long as I personally guaranteed the loan he apparently got frustrated and told me I’m free to ask elsewhere. Out of curiosity, was your bank a local bank or larger? I’ve been having my issues with First Niagara which from what I’ve been told are larger here on the East Coast and thought of as more of a “local bank” but I’m thinking for something like this is might be a bit better to hit the big guys like HSBC and see if it can get pushed through there.
We’ve been working with a local bank here. They have branches in a few surrounding towns, but are pretty small overall and there’s not eight levels of bosses involved to get a decision.
We had to go bank shopping about a year and a half ago since our first bank scaled back on investment property loans. That bank was getting burned by the amount of condo loans they had where prices really crashed hard. Some banks here didn’t want to do a NOO loan at all. Others wanted between 15-30% down. Some wouldn’t loan to an LLC at all. One bank told us they’d loan to an LLC w/ 30% down, but wanted a minimum of 50k for the loan. Just expect that the big names will have their program requirements and won’t waiver from that. Sometimes the smaller banks will be more flexible with you. That’s what we found and the local bank became a dream deal for us.
Maybe you have heard about the recent chain of title issues the lenders are having. Borrowers who are delinquent are trying to muddy the process to stay in properties longer.
When you put the “responsibility” in one name and the title in another name, they fear you are trying to set up a situation that will create a gray area when a foreclosure comes. This will greatly increase their costs of foreclosing and thus, their risk on the loan.
Also title insurers are not liking these set-ups more and more so if the lenders fear tehy can’t get TI, they won’t do them either.
It is just a very uncertain time now. It will sort itself out.
This should be a warning for other investors who think they are going to refi as an exit to their HML’s. It isn’t easy.
We couldn’t find a local bank that would lend to a LLC, so everything went in our personal names. Later I learned that we could have deeded out to the LLC, but it doesn’t seem like a big deal to have properties in our name.
Once we get really big or affluent, or both, I will worry about it. For now, it’s personal names and liability insurance.
Definetly appreciate the info Downer. As of now I’ve pushed out to three banks what my intentions are and received one telling me its possible (HSBC). Still waiting to see what the outcome of that will be.
To be honest I’m more looking at it from an asset protection point. From an investment point most investors tell me until I become larger its not an issue (currently own four properties not including my own). HOWEVER, I have talked to many attornies and one commercial loan officer that says its a bad idea and that it’s just a matter of time before an angry tenant or business or for that matter stranger falling on my slippery sidewalk takes advantage of the scenario. Although I don’t like to take the paranoid route I do believe preparedness is in order in business and that may borderline “business paranoia”. To note, much of this is from hearing the horror stories of local investors and many of the major contributors on this site that pushed me to invest.
With that being said I’m obviously looking for the best of both worlds (early asset protection and prime financing) and am hoping that this is possible. In all reality, I’m assuming something will have to be sacrificed but I’ll push till told otherwise. If I need to continue to push, how have you all pushed back on the banks for terms you deem acceptable AND when do you walk away without burning bridges? Well used to this with sellers but big business is a bit of a different story…
Again, appreciate all the info given and hoping that this scenario can give some insight to the newbies as to the hurdles in the industry.
About the only negotiating we did with any bank was with our current one. Our banker originally said he wanted 30% down for NOO deals. I put that down on my notepad as we were bank shopping. After we got home, my wife and I were pretty down because it looked like we’d have to put down 30% just to get a deal and that would really slow down building our business. Then I called this banker back and asked him if it was definitely 30% down no matter what, or if that would be flexible if we made good deals and bought at a discount. He then said the bank had to feel like they had 30% equity in the property. So that opened the door for low or no money down deals. I’m so glad I made that phone call back and asked some more questions.
Use your experience with your current properties. Take pictures, tax returns, financial statements, etc in to a bank who is at least still willing to lend on investment properties. Show them you’re doing this and not just looking to get into it.
Our banker was impressed with our organization and thought we were of good character. Those are the things that tipped it in our favor.