I am wondering about financing a multi unit apartment building. 10 to 20 units bought and placed in an LLC. I have large amounts of equity in my business, but I want the loan to stay in the LLC. I don’t want to be personally guaranteeing the loan, I want it to be secured only by the real estate in the LLC.
Is this possible?
What does it take? More down? Higher interest rates? a showing of expereince in REI?
I am assuming that at some level of downpayment, a lender is would be comfortable lending against the property only. What is the lowest level that could work?
Thanks,
DB
PS I am looking for advice first and then maybe contacts, to please no “contact me and we’ll talk” responses. If you give good advice, I will contact you.
it will be a combination of all those things for a lender to feel comfortable:
Resume: How long has the LLC been in operation, how many properties
LTV: because of the risk, may max at 60%
Rates: generally they will be higher, but not always.
Credit: some lenders will require to see your credit just to verify that it is not too bad. they will still lend in the name of the LLC. The best you may get is a partial recourse for a short time. I hope this helps.
my credit is in the 800s, I have never missed a payment.
If I have to go to 40 % down, how long until I can refinance and pull the money out. I am thinking that once the apartments are mine and we see how the cash flow is working out and if the deal proves to be a good one, then the lender can get more comfortable at a higher rate?
I am willing to pay a higher rate if it gets me a non recourse loan.
What did you mean about a partial recourse for a short time? How does that work?
partial recourse is the middle between full recourse and no recourse. for example, for a loan of 1mill, you may only have to personally guarantee 25%. With credit scores that high, there is a strong possibility for higher ltv and lower rates. generally, these loans come with a 2yr prepayment (at least). I hope this helps. What is the cost for the building? purchase price?
Purchase price will be around $500k to $750k. I am still researching and am narrowing down what I want to do. I have a partner who is finding deals like this for investors, and I am getting ready to do one. He recently had one that was valued at 575,000 using an 8.5% cap rate. (normal for the area) The negotiated price was $450,000. How does that affect the loan? (equity in the form of below market purchase price ) Because of the difference in value and price, will the lender consider some portion of that as equity in the property?
When you say 2 year prepayment, is that on top of the downpayment?
Is it the first two years payments or the last two years?
How much of the lenders decision is based on me being able to sell myself and my abilities to make a deal work? The more I study this the more I realize that there is some subjectivity in the process. It is not all about the numbers.
Non-recourse loans to an LLC. usually require a 3 year financial history. If you are a new LLC. and your equity in the project is clearly worth more than loan there are some commercial lenders who would consider the loan. They would usually charge you points up front as well a prepay penalty on the loan. If your property shows a positive cash flow after expenses including paying the loan on a monthly basis you might get such a loan.
Ususally with a new LLC. you will have to take a loan requiring personal recourse. It will give you better terms and a more profitable investment.
For future reference, If you can handle the downpayment on a larger property where the loan amount will be $1,000,000 or more, it is much easier to get a Non-Recourse loan.
Below $1,000,000 and you are below many of the larger lenders minimum loan amount and those that participate below that level are not as inclined to offer Non-Recourse as an option.
You are telling me that it is easier to get a non recourse loan above $1,000,000 ? How much down will that require? That is where I plan on going, but was going to start smaller for comfort sake. Could you explain how a deal like that would likely be structured. How much down, what terms and interest rates, etc.?
Conduit in Commercial loans is somewhat similar to a Conforming Residential Loan. The Loan is underwritten to certain standards and guidelines that allow the loan to be readily sold in the secondary market (Wall Street if you will).
These usually start at $1,000,000.
The Max loan is usually 80% LTV for Apartments so would require a 20% downpayment
Sorry, but did not have time to answer the remainder of your question.
Regarding a Conduit Loan that I discussed earlier, these loans are harder to get and more expensive than a (Portfolio) loan, because of the additional underwriting requirements and reports needed.
However, the Rates and Terms you will end up with are the best you will find.
As of today, I am showing a 10 year fixed rate/30 year amortization, starting at about 6.13%. But with the bond market up and yeilds down, that might go down a little over the next few days as it was below 6% very recently.
80% is a good place to start to keep you at a good interest rate, but remember, there are certain lenders who will go as high as 95%(may require a first and second mortgage) with good cash flow.