Rental Property Investor · NE OHIO · Member since 2018 · 22 posts · 21 votes
I want to build a rental property portfolio. I’ve heard several investor say “It’s best to do an LLC for rental properties”. I do agree with that statement, but how do you obtain a conventional loan under an LLC? I would assume the bank wants some type of financial history for the LLC to even consider offering a mortgage. Are most new investors getting a mortgage under their own name and transferring it to the LLC? If so, do banks allow that? I know I am able to get fInancIng for myself, but as a new investor (and new LLC), I would think banks would deny a loan due to lack of history? Any info or links to info would be helpful! Thanks!
@Clifton Young you cant get conventional loans for an LLC, only commercial loans. People do buy the property in their name to get better financing, and then transfer the property into an LLC, but some lenders dont like that. Most loans you get in your LLC will need to be personally guaranteed by you, so the history of the LLC is irrelevant.
I typically create a new LLC for each rental property so it never has a financial history. The Banks will look to your personal financial capability. The will ask for your last two years tax returns, W-2's, most recent pay stubs and two months bank statements as well as statements of other assets you may own, as well as your credit score. They will, of course, also ask for a personal guaranty. Check with local banks as they tend to offer loan products for small businesses or smaller investors. I'm in NJ and spoke with (so far) three local banks headquartered in my state. One offered a business entity loan, specifically for LLCs purchasing 1 to 4 families. They have a 5.25% rate and 30 year fixed for rentals!. The other two banks didn't offer anything as favorable, but one had a great construction loan product for my flips. Point being, don't assume you will be denied, just do research, find local banks and start asking them what products they offer and what they want to see. Good luck!!!
@Clifton Young Yes, I have, but not on my buy and holds. I did it on a flip property when I was getting financing through a broker. At that time the rate and terms were better individually than through the LLC for a construction project, so I did the loan in my personal name and transferred it to the LLC for liability purposes. Didn't have an issue doing it, but that was a flip, not a long term hold.
Be careful getting a loan in your name and transferring it to your LLC. It can trigger the "due on sale" clause and a lender could demand you pay the loan balance in full.