Case Study1031 Improvement Exchange Hard Money Loan
Loan Amount: $533,000
Loan-To-Value: 65% LTV
Situation & Challenge
The buyers of this vacation rental on the Oregon Coast were unable to obtain conventional bank financing due to the transaction being a 1031 Improvement Exchange. Due to the tax-free exchange, a new entity, an LLC, was created and owned by the 1031 exchange company. The new LLC would be buying the property. Conventional lenders will not lend to an LLC, especially an LLC owned by the exchange company.
Solution & Result
First Capital Trust Deeds worked with a private money fund to set up a 12-month bridge loan to acquire the property. The loan was made to the new LLC, owned by the exchange company, and the end-user borrowers guaranteed the loan.
Upon completion of the $150,000 in expected renovations to the property, the 1031 Improvement Exchange will close, and the LLC will be transferred from the exchange company to the borrowers. At this time, the borrowers will be able to refinance into a conventional 30-year fixed rate loan.