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Refinancing issue of LLC rental properties

Hello

I'm having an issue trying to refinance some rental properties I have in an LLC. Currently I have 2 duplexes, 1/2 of another duplex and a single family ranch all are rentals titled in an LLC. Currently a small community bank gave me a commercial loan 20 years adjusts every 3, rate is at 6.0% now. Have had the properties about 5 years, LTV all in the 60-65% range, all were foreclosures, rehabed then rented out. The issue is with the 15year fixed rates as low as they are I would like to move into that product but so far all lenders say I would have to move the properties into my personal name to get a 15 year fixed product. The tax account says if I do that the LLC would have to sell the properties to me personally at fair market value which would trigger capital gains taxes that would likely make the savings of going to 15 year loan not worth it.

Has anyone seen this issue before or have an idea around the issue.

Thanks for your help.

Kirk


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May 03 2013 - Indianapolis
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Answers (7)

Best Answer
If the lender requires title in your name and your LLC is single member, you can deed it out of the LLC into your own name, refi, then deed it back without any tax consequence.  It's often easier to do this than search high and low for a lender that will lend directly to the LLC.

If your LLC is a partnership, you can probably do the same thing, although you should speak with your accountant to make sure there's no negative tax issues.
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September 21 2013
No gain in that case, because you are substituting the basis in the property for an interest in the LLC.  Make sure LLC and operating agreement are done prior to the refi.

No fraud because you are transferring after the refi.  It's only loan fraud when you lie when they ask.  And they won't.
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September 21 2013
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Mr Bronchick

Thanks a bunch, never thought of that as a work around. 

Does that trigger a capital gain?

Any position on,  if that is some sort of loan fraud knowing in advance what I'm planning to do as far as the lender goes?

Kirk
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September 21 2013
Yep.  That's a prob with S corp.  There's a way around it...

Instead of deeding back to the S corp, form a new LLC that is partnership between you personally and the S corp, then have the S corp contribute the property and you contribute you credit for the loan.  S corps are BAD for rentals in the long run (ask me how I know that one personally!).
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September 21 2013
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Mr Bronchick

Thank you, I forgot to add the LLC is taxed as an S-Corp this seems to be the sticking point. I consulted a real estate attorney he said if I move the properties out of the LLC it will trigger capital gains due to the S-corp part. He saw no way to do this deal without paying the taxes.

I also asked if I move ownership in the morning out of LLC to me personally signed the loan docs then moved the properties back to the LLC, he said this is still a taxable event to the IRS. In addition he thought it might be loan fraud.

Any thought  on these issues? Thanks in advance

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September 21 2013
I also have an LLC - and I was actually looking for lenders as well - found two out of state that will handle non-recourse loans for LLC and even self-directed IRA purchases.  Their profile requires the value of the property be at least $50K per door and they will lend up to 65% LTV.   Send me an email and I can send you back their website contact info. [Spam content removed by Zillow moderator due to violation of Good Neighbor Policy].
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May 03 2013

 

You need to keep looking around.  You have not found the right lender in your area.  Refinances that are currently vested in an LLC must meet the following additional requirements listed below.  If you can find lender that has these requirements and you can meet them, you will be in business. 

·   Borrower must be 100% owner of LLC

·   LLC must be in place/recorded prior to the purchase of the property

·   Title on subject loan cannot be taken in LLC

·   Or the title must be held as individual for a minimum of 6 months

Best of luck

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May 03 2013
 
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