Business Structure

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Business Structure

Lee Liberman
Investor · Baltimore, MD · Member since 2013 · 31 posts · 3 votes

Myself along with my two brothers have begun to acquire properties. I have purchased one house by myself, and my brothers have purchased one together. We have not created an LLC and are planning to purchase a property which we will split three ways. When we buy a house that all three of us invest in equally, how many names should be on the title and mortgage? We would like to use the Fannie/Freddie (4 loans a person) approach for now. My brothers are both on the mortgage and title for their house. Are they able to get 7 or only 6 more Fannie/Freddie loans (6 due to each being on the one reducing their access each to 3 additional)? Since they are both on the mortgage, does their ability to get mortgages get reduced because they are both shown as having the full liabitility as opposed to split?

Additionally, when we set up an LLC, would we be able to add the LLC's name to the title on our existing homes? Can we add the LLC to the new homes purchased along with one of our personal names and still aquire fannie/freddie loans or does this force us into commercial/portfolio lending?

Thanks in advance for your help.

-Lee

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Ellis San Jose
Specialist · Westlake Village, CA · Member since 2010 · 1k+ posts · 781 votes
13y

If I am not mistaken, if your name is on a loan as a borrower,whether individually or jointly that counts as a loan against each party.

You might consider one borrower per property and then transfer into the entity of choice.

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  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    13y

    All three need to be on the title. If they are not on the deed they are not owners of the property. Whoever is on the mortgage is legally responsible for it regardless of who is on the title. Generally it would be considered most fair to have all three on the mortgage.

    Yes but essentially that is a sale from yourselves to your LLC. In some states that may mean a transfer tax. Generally Fannie and Freddie will not finance an LLC. You will be looking for commercial loans. Good lcuk - Ned

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  • Lee Liberman
    OP
    Investor · Baltimore, MD · Member since 2013 · 31 posts · 3 votes
    13y

    Still unsure if all of us being on the title and mortgage for lets say four properties means that we can not get additional fannie/freddie loans (8 more/4 per person)?

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  • Ellis San Jose
    Specialist · Westlake Village, CA · Member since 2010 · 1k+ posts · 781 votes
    13y

    If I am not mistaken, if your name is on a loan as a borrower,whether individually or jointly that counts as a loan against each party.

    You might consider one borrower per property and then transfer into the entity of choice.

    1Reply
  • David J.
    Investor · Houston, TX · Member since 2009 · 210 posts · 261 votes
    13y
    I think the answer here depends on your relationship with your partners. Fannie won't finance properties in LLCs (at least not in my state). If you want to take advantage of the Fannie rates and terms they have to be in individual names. LLC financing is most likely found through commercial or portfolio loans. That said, you could also each finance a property or two in your own names and have the partnership/LLC agreed stating the terms and the splits. Your tax results are the same but the underlying liability would not be. Essentially your agreement with each other would make each of you responsible to each other, but the ultimate responsibility for the loans will be on the individual on the mortgage. I have multiple partnerships with properties financed/titled in other people's names. The income and expenses still pass through to the partners/members of the LLC. I agree with Ned Carey that the safest way is to put everyone on every house. A disadvantage of that is that you will eat into your Fannie limits and debt to income much quicker than financing them separately. If you can stomach the risk you can increase your holdings using Fannie if you finance separately. Insurance would be in the title holders name with your LLC as an additional insured. Like I said. I have used "credit partners" in this way because I am out of Fannie bullets. If things go south you should have a well thought out and documented agreement between the parties holding each other accountable, however, the lender will only lol at the name on the mortgage for ultimate responsibility on the loans. Hope that helps.
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  • Lee Liberman
    OP
    Investor · Baltimore, MD · Member since 2013 · 31 posts · 3 votes
    10y

    All very helpful. The only issue is if someone sues they would be suing the person individually and the LLC will have no protection for limited liability, correct?

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