Personal HELOC with LLC

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Personal HELOC with LLC

Eric Waterman

Howell, NJ · Member since 2015 · 106 posts · 27 votes

If I were to set up a HELOC with my personal residence could I use that to purchase properties to flip under my LLC?

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Jeff V.

Investor · Deridder, LA · Member since 2014 · 298 posts · 185 votes

10y

@Eric Waterman

Yes it can be done.

Several ways to accomplish this:

First way is to get the HELOC in your personal name using your home equity as collateral. Take a draw from the HELOC and deposit in your personal account. Then write a check from your personal account to your LLC's account as a MEMBER CONTRIBUTION. This will keep the funds accounted for properly. However with this method the payments and interest will be made from your personal funds being its really a personal loan.

Second way

Obtain a HELOC within your LLC using your PERSONAL home equity as the collateral. Then when you take the draws you just put the funds directly into your LLC account. You then pay the payments and interest from the LLC funds. It's much cleaner this way.

Either way, just know your personal home is at risk every time that you use the funds to do a flip ect. So be sure and minimize your risk as much as possible and make sure you have plenty of reserves to cover yourself.

Hopefully this helps point you in the right direction.

Oh and either way you will have to guarantee the debt personally anyways regardless of which way you structure it.

Jeff V

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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
10y
Sure. It's done all the time.
0 Reply
Eric Waterman
OP
Howell, NJ · Member since 2015 · 106 posts · 27 votes
10y
would the LLC be considered my alter ego?
0 Reply
Jeff V.
Investor · Deridder, LA · Member since 2014 · 298 posts · 185 votes
10y
@Eric Waterman
Yes it can be done.
Several ways to accomplish this:
First way is to get the HELOC in your personal name using your home equity as collateral. Take a draw from the HELOC and deposit in your personal account. Then write a check from your personal account to your LLC's account as a MEMBER CONTRIBUTION. This will keep the funds accounted for properly. However with this method the payments and interest will be made from your personal funds being its really a personal loan.
Second way
Obtain a HELOC within your LLC using your PERSONAL home equity as the collateral. Then when you take the draws you just put the funds directly into your LLC account. You then pay the payments and interest from the LLC funds. It's much cleaner this way.
Either way, just know your personal home is at risk every time that you use the funds to do a flip ect. So be sure and minimize your risk as much as possible and make sure you have plenty of reserves to cover yourself.
Hopefully this helps point you in the right direction.
Oh and either way you will have to guarantee the debt personally anyways regardless of which way you structure it.
Jeff V
6 Reply
Eric Waterman
OP
Howell, NJ · Member since 2015 · 106 posts · 27 votes
10y
Great thanks @Jeff V. For the information I appreciate it!
0 Reply
Michael Sauls
Investor · Alexandria, VA · Member since 2019 · 21 posts · 9 votes
6y
@Jeff V. Sorry this is old, but I'm at this stage right now. I'd like to do option #2, but not sure how to go about it. Will banks allow my LLC to open a HELOC against my personal house even though the LLC doesn't own my house? Thank you for your time!
0 Reply
Jeff V.
Investor · Deridder, LA · Member since 2014 · 298 posts · 185 votes
6y
@Michael Sauls Yes they will even allow you to open one against someone else's collateral provided they are aware and sign off on it.
Jeff
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Kerry BairdPro Member
Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
6y
You borrow against your own home. Take cash and put into your personal checking account. Write a check from your personal account to open your LLC business account, and write on the explanation line "owner contribution."
1 Reply
John Adams
Investor · Atlanta, GA · Member since 2011 · 12 posts · 9 votes
6y
A significant advantage to having the LLC borrow (using your personal asset such as your home for collateral) is that the mortgage interest will be fully deductible as a business expense of the LLC.

If you borrow as yourself, then make a "member contribution" into the LLC, then the interest is deductible only as subject to current tax law, which recently has imposed various and significant limitations on the deductibility of mortgage interest. Notably, one can now only deduct interest if the mortgage is for the purchase of the home -- you can no longer deduct interest for a "cash out" mortgage. There are other limits (esp on dollar amounts and such).

If you borrow as the LLC, then all of the expenses (mortgage interest, fees, etc.) are simply deducted as business expenses. Very simple and clean. The "catch", however, is that you are borrowing as an LLC and not as an individual. Pretty sure that you will get a different (not as good) rate borrowing as an LLC.

I'm not a tax guy, and not an attorney, but these are the major issues.
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Michael Sauls
Investor · Alexandria, VA · Member since 2019 · 21 posts · 9 votes
6y
@Jeff V.Thank you both SO much! Really appreciate it! This is exactly why option #2 seems so appealing. I'll start calling banks today and see what they say.

@Kerry Baird Thank you Kerry - this sounds like option #1 (mentioned by Jeff a few posts up - and while the front end makes sense doing the owner contribution, I'm curious how the back end works when I need to repay back the HELOC. If the LLC pays me back, then it's a draw and taxed accordingly right?
2 Reply
Michael Sauls
Investor · Alexandria, VA · Member since 2019 · 21 posts · 9 votes
6y
Just wanted to update everyone on what I ended up doing.

So I called a bunch of banks, both large and small, and nobody said they could do option #2. A shame because this sounded perfect. (Obtaining a HELOC within your LLC using your PERSONAL home equity as the collateral.) (ps..this was all before COVID19)

I ended up going with option #1 and getting personal HELOC. I'm currently speaking with my CPA to figure out any solutions to deduct the interest payments, though like @John Adams mentioned, it seems unlikely due to the limitations of the current tax laws.
1 Reply
Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
6y

You are eligible to deduct interest expense if the loan proceeds are used for a business venture which it looks like the original poster is doing(for a flip).

[email protected]917-280-8544
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Michael Sauls
Investor · Alexandria, VA · Member since 2019 · 21 posts · 9 votes
6y
@Basit Siddiqi Than you, appreciate it!! My CPA just said the same thing so looks like I’m good! :)
The key is to make sure the HELOC proceeds are held in my business account and NOT comingled with my personal accounts.
To have my LLC payoff the HELOC, is it as simple as writing a business check to the bank providing the HELOC?
0 Reply
Jesus Lopez Jr
Goodyear, AZ · Member since 2017 · 13 posts · 0 votes
6y
Really good post and answers! I'm currently in the process of taking out a HELOC on my personal home and was wondering how I could go about using if for investment purposes...
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Michael Sauls
Investor · Alexandria, VA · Member since 2019 · 21 posts · 9 votes
6y
@Jesus Lopez Jr Hope your HELOC goes well! We successfully used our HELOC to purchase a house as a "cash offer" 3 weeks ago. Closed in 6 business days. Wish all my closings were as smooth and fast as that. Saving so much $$$ instead of using my previous hard money lender.
1 Reply
Kylene Chavez
Member since 2020 · 6 posts · 2 votes
5y
This was the perfect thread for me, thank you! I would like to use my personal HELOC to purchase a buy and hold under a new LLC, with plans to cash out refinance. How will paying back the personal HELOC back from a cash out refi work?

@Michael Sauls How did you end up paying yours back? Thank you for any input!
0 Reply
Parker Larsen
Rental Property Investor · Saratoga Springs, UT · Member since 2020 · 22 posts · 7 votes
4y
@Kylene Chavez Did you end up doing this? Curious how it went! I'm looking into doing the same thing and getting a HELOC to purchase property under my LLC
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