Having Trouble Getting a Loan for an LLC? We’ve Got You Covered

Having Trouble Getting a Loan for an LLC? We’ve Got You Covered

2 min read
Scott Smith

Scott Royal Smith is an asset protection attorney and long-time real estate investor. His law firm, Royal Legal Solutions, helps thousands of real estate investors and entrepreneurs in all 50 states protect more than $1.2 billion in assets. Since 2014, he has published over 1,000 posts and articles on BiggerPockets and has appeared on hundreds of podcasts.

Experience
Scott fell in love with real estate when his commercial property investment allowed him to graduate from Albany Law School debt-free. He immediately began practicing at the trial and appellate court with the district attorney, placing him in the top 1 percent of lawsuit attorneys in the county in terms of professional experiences. He also worked in private practice, suing insurance companies for denying valid claims (which is surprisingly common!).

After his friend lost $3 million in real estate from a single lawsuit, despite having ample insurance, Scott dedicated himself to educating real estate investors on the importance of affordable asset protection, specifically when it comes to folk knowledge and misconceptions that still exist in the investment and legal community. The solutions Scott recommends for his clients are the same ones he originally created for himself and has been refining on his mission to help people protect themselves from frivolous lawsuits.

Follow Scott as he deconstructs the litigation game and shows you how to free your time, protect your assets, and create wealth that lasts for generations.

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Scott regularly appears on shows with folks like Grant Cardone, BiggerPockets, Entrepreneurs on Fire, Wheelbarrow Profits, and his own real estate investing podcast. He frequently interviews industry experts on his Facebook and YouTube accounts and has published thousands of posts and articles on BiggerPockets and his blog for real estate investors.

Education
Scott graduated from Albany Law in 2014.

Accreditations
He has passed both the Texas and New York bar exams.

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This article does not constitute legal advice. We recommend you seek the counsel of an attorney familiar with your specific situation and market to ensure you make the best decisions within your real estate business.

Good news! Consider this lending problem solved.

Time and again, I hear complaints from my clients and fellow investors about the difficulty of getting a loan for an LLC. They’re usually confused, because they already know that using a traditional LLC (or ideally, a series LLC) is the best way to manage their property. As is often the case in my practice, the person is asking the wrong question. Investors ask me how to get a loan for an LLC, when the better question is, is there a better way to get the loan they need?

There’s a better way to set up your LLC or SLLC to serve you, but it starts at the very beginning. Follow these simple steps and you won’t be awake at night stressing about taxes or due-on-sale clauses. Hell, that’s my job. But I’ve found that just taking these steps, in this order, helps me avoid a lot of these problems altogether. Let’s get started.

Related: Top 3 Real Estate LLC Myths: Busted!

Step 1: Buy in Your Name

As a general rule, you are going to have a much easier time securing a loan than an LLC. Maybe you’re eligible for a personal or business loan. Many of my clients have good home equity and use funds from their HELOC to purchase rental properties or second homes. If you’re absolutely clueless in this department, talk to your banker. You may be eligible for a variety of loans and simply not know it.

first investment property

Step 2: Transfer to Land Trust

This is a crucial step, both for protecting the land itself and avoiding the due-on-sale clauses that come standard with most loans. In short, most loans must be paid back in full if and when the property is transferred. However, transferring property to a land trust does not violate the due-on-sale clause. You get to keep your loan and avoid the whole (typically fruitless) hassle of attempting to get a major creditor to give a loan to the LLC itself. This handy dandy loophole allows you to move and manage your property without having to cough up a bunch of cash.

As an added bonus, the land trust grants you, the investor, anonymity. The anonymous land trust is nearly impossible to penetrate in court. As those who have read our other articles on anonymity will understand, it is nearly impossible to be sued if nobody can prove you own a property. The land trust piece helps prevent lawsuits by legally separating you from the property itself.

Related: 3 Benefits of Holding Your Properties in an LLC

Step 3: Land Trust to LLC

Once you’ve transferred your property into a land trust, simply deed the property to your LLC.

Last but not least, you will need a solid operating and property management agreement for your LLC to effectively manage the property in the trust. Your attorney can help you sort out the details here while preserving the anonymity you have already built.

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Do you have any experience with this method of getting your loan? Share in the comments below!