We are just taking baby steps and God-Willing, closing on our first deal next week. Its a 2-family REO. We would like to form a corporation through which we would like to buy more deals . How do we get started after forming the company ? How do we grow company credit and get a loan approved in the company's name? Any advice in this direction is greatly appreciated. Thanks in advance
Building a Corporation is easy, but it will take time to build business credit. You have a slim chance getting a loan using a new Corporation unless your personal guarantee the loan. Most lenders will pull An Experian or Dun and Bradstreet business report.
Account Closed I'm so sorry to burst your bubble, but if you're expecting to get a non-recourse loan from a bank in the name of an LLC or other entity when starting out then you're in for a surprise!
Banks want your head on the cutting board so if the fodder hits the fan then you have to pay up. A few months ago (I'm still a newbie) I read Rich Dad Poor Dad and thought that corporations can bypass ANY financial or legal liability. In real estate investing, especially if you're working with banks, you're going to sign a personal guarantee. At least when you're starting out.
Perhaps a portfolio lender that doesn't underwrite to the Fannie/Freddie guidelines will bend the rules a tad bit.
As for establishing credit, if you have W-2 income and good credit you can get a loan in your personal name. The credit comes from building up and acquiring assets and having an impressive financial statement that shows you know how to handle money.
You can become VERY SUCCESSFUL Mohamed, but recourse loans are something you're going to have to deal with. Don't worry though- Even Ken McElroy, Robert Kiyosakis partner, and Rich Dad author deals with recourse.
Get some experience under your belt with good deals and the credibility will follow!
Hope that helps! :)
BTW There is always creative real estate investing where you might be able to avoid getting financing all together. Thoughts?
Your best bet is to seek a private equity partner or private lender and secure their interest against the property in exchange for 60-65% loan to cost. This provides protections to the lender so there is adequate equity to sale the property in the event of default. This also allows you to continue to purchase while other properties go through your inventory cycles (evictions, renovation, escrow). Best of luck. should you have questions on this methodology, please contact me.
Thanks for the quick reply. Is it possible to personal guarantee the loan but buy it through the LLC with a view to developing credit long-term? The rentals that come in would be the income of the company ...How else does a new company get a mortgage loan ?
I think your best bet is forget about the LLC route and buy in your personal name. If you did get a loan using the LLC, most lenders don't report your business credit like they do your personal, and if you are looking for protection get a good insurance policy. Many years ago, banks would loan to LLC, but they got burnt big time because borrowers would set up an LLC get all the money they could and closed up shop and run around the block and repeat.
It took me a few years to build my taxes returns before I could get lenders to loan to the entity... with a personal guarantee. Same with a line of credit... small line around 40K.
@Joe Gore is right on. Just get some liability insurance going. it's not two expensive. I'm not sure, but perhaps once you start to build a rapport with your banker and possibly go into commercial real estate you'll be able to do so.
I've heard that some portfolio lenders (local lenders that don't adhere to the conventional guidelines) will allow you to do so. Podcast #6 with Arthur Garcia goes into those type of banks.
I'm no expert on REI, so make sure to check your sources @Account Closed
If you have credit over 720 companies will give a business line of credit 50-150K to each person in the LLC.
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