LLC Financing

8 Replies

Hi Everyone. Two friends and I are on the verge of starting a Real Estate Investing business. One of them has a large sum of money to use to buy houses and flip them so it seems that is where we are going to start. However we also want to buy some rental properties. The problem that we are having is we ant to start an LLC and we want to leverage financing for the rental properties. What i have seen online it is all but impossible to take a loan out as an LLC so what are some of our options? Thanks Everyone!

Many banks will loan to the LLC, i.e.: the legal entity and borrower under the loan documents will be the LLC, however, if an LLC has no assets or business history, the individual or "sponsor" of the deal will be a full recourse guarantor under those loan documents.

Om, does the sponsor open themselves up to personal liability in that case?

That makes sense thank you Om. I am also curious if this would also make the sponsor open to personal liability. 

I would first consult an attorney and a banker before going further. They will be your best answer. I'm married to an attorney so I know first hand how valuable they are. As for loaning to an LLC a banker would give you exactly the answer you seek and if he's a good banker that knows his stuff he knows how to help you get around the road blocks.

Welcome to BP. 

You WILL be able to obtain financing for your LLC as long as you provide personnel guarantee for the loan. You will not be able get 30 year fixed rather 5 year fixed (arm or balloon).

Having a series LLC is probably the best way to own real estate for most investors. It cost money in the beginning, but it will save you a lot in the long run.

Hope it helps. 

@Chris L.  @Robert Delgado  yes, giving that personal guarantee opens you up to personal liability if the deal goes bad.

A brand new LLC with no history and no assets is not going to get loans without either personal guarantees from the principals or a very large down payment.

Hey @Robert Delgado it is definitely not impossible to get a loan in your LLC, you just need to work with the correct lenders. Do not waste anytime going to a large bank like Wells Fargo or BofA. You need to go to the smaller community banks in your area and find out who does portfolio loans. As others have said, they will definitely have you sign a personal guarantee for the note, but you can have the Warranty Deed, Security Deed and Note in the LLC. Another benefit of doing it this way is that it does not usually show up on your credit report.

Like @James Syed mentioned above, you won't be getting a conventional 30 year fixed rate mortgage written directly to the LLC. It's actually against the FNMA/FMCC guidelines. There are lenders that will write loans to LLC's, but the loans will be considered commercial/portfolio loans and will have different terms (ARM or balloon payments).

To benefit from conventional 30 year fixed rate mortgages, some people take title to properties in their own name, have the loan written in their own name, then transfer the deed/title to their LLC (while keeping the loan in their personal name) later down the road. It's not illegal but it violates the "Due-On-Sale" clause written into your mortgage. The lender will then have the "option" to call the loan due because of this transfer of interest "event". This is a risk people some people are willing to take! Use the search tool in the top right corner for more information on the DOS clause!

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here