Expert: Terrence Cullen - 1/6/2012

Question
Hello,

I have two 2-family houses I bought for investment and income supplementation, owned under an LLC in which I am the only member. One house was extensively renovated, and the other partially,  financed by commercial bank loans and credit cards.  While I got my properties cheap and have low mortgage payments, I have not been able to achieve profitability due to these renovation debts (in the amount of 25K).  Some of the interest rates are not great on these debts.  I recently approached a bank in which I have a checking account and asked about a loan to consolidate these debts.  Interestingly, the loan officer proposed I include my mortgage debt - currently financed at about 6% with another bank - putting all under one umbrella, as it were.  The monthly payment at around 4% would put me into profitability.

My concern is putting all my eggs "in one basket."  I'm a cautious person, and don't want anything to go wrong in which I lose one or both houses.  The umbrella loan would eliminate my mortgages and I would no longer escrow my taxes and insurance (O.K. with me).  My belief has been, that with one bank consolidating my loan debt, and another holding my mortgages, I'm somehow better off, with less risk financially.  Is this just an illusion of mine, or is there some truth to it? Or is it all in the loan agreement and my knowledge of the terms so I understand how not to screw something up which prompts them to take my property?

Thanks for your response.

Peter

Answer
In actuality the idea of not having all your eggs in one basket is a solid concept with banks going from flush to freeze without notice. I am worried that you are not getting all your write offs--check with your accountant and make sure you to continue your relationship with the other lender even telling them what you have planned so they can match or beat the deal and also to make sure there aren't any prepayment issues or mortgage timing issues. good luck TC