Refinancing An LLC Held Property
My brother and I formed an LLC to hold a single family investment property. We drew up promissory notes and loaned the LLC our personal cash to fund the purchase.
We now want to refinance the property to obtain cash for down payments on additional properties but the mortgage lenders I've spoken to won't do the refi because they say it's a commercial deal.
Any ideas on how we can pull cash out of our LLC held property at a reasonable rate?
I had a deal in w/ a lender, that when to crap w/ the broker/lender, but they were willing to lend in the name of the llc, and give OO or NOO rates. The lender has a 400 or 450 min deal size, and if you like, PM and I'll give you the name.
The bank I ended up going w/ will only lend in my name. I ran it by my atty and he said since thre was a personal guareente on w/ the other bank, it's effectively the same deal.
Have you looked at note broker? The charge a discount, how great I'm note sure.
As noted you can try to sell the note to a note broker. You will pay in the form of a discount and higher rates.
Lets step back a bit.
Why have the property in a LLC? No matter what the answer you are trying to get some benefits by holding in an LLC. There is a price for the benefits.
When a lender makes a loan they are taking a risk. They set the interest rate above what they could lend the US government. The US government is consider risk free. The difference is the risk premium which is to cover the added risk of default.
So, when you ask for a loan to an LLC you are putting the lender at more risk then if they lend to you. The LLC has little history, not other assets, and otherwise not much more then a piece of paper. Hence the lender will definitely want to charge more then you would expect to pay if the loan was in your name.
A reasonable rate might be what you have already been offered. It might be there is no rate at which the lender will make the loan if you do not provide a guarantee. If you do provide a guarantee then you are possibly reducing the benefits you think you are getting from the LLC.
LLC's are not magic. If you just want liability protection then consider using the LLC and signing a guarantee for the loan as this hybrid blends the best of the two worlds.
John
[addsig]
I agree. You can put the loan (or refi) in the LLC name and personally guarantee it. If you do this, any lender will finance it provided it is a profitable property and you meet their credit criteia.
You should also know that any loan costs more when it is for a property that you do not occupy.
I have a lot of rental loans through an LLC. These are not the standard conforming mortgages, they are commercial loans. You cann't get the standard conforming loans you usually see for the LLC. The exception is those who finance it personally, then quit claim it to the LLC, and the long fixed rates are available on apartment buildings over $500k in this area.
Through commerical loan department of most regional banks near me I can get the same loans for the LLC rental, which is typically a 5yr ballon at Prime + 0-.5%, payment based on 15yr AMT (calculated at current rate or a higher rate ~6% depending on bank), sometimes with a ceiling and sometimes without (First Citzens has actually put free 6% ceilings on my last 2 loans with them). On nicer, newer properties you can get the ballon out to 7yrs and/or 20yr AMT. You can get fixed for the same loans, although they are not attractive... on the last First Citzens loan in example they offered 6.5 fixed as an alternative (I took Prime + .25... with a 6% ceiling, obviously).