LLC and financing

5 Replies

Hi all, I a new investor just learning the art and science of real estate investing. After reading all the discussions on various forums on BP, I want to set up an LLC and buy a single family rental unit for buy and hold. The local bank I talked to, will consider this as a commercial loan, and it will be a 5 year balloon loan with with a 20 year amortization.

Do you think it is a good idea?

I was also curious, as to the functioning of LLC. If one cannot co mingle the funds between different LLCs and with personal assets, how is the real estate investing to be a source of passive income.

And What do I do with the income generated with the property in that LLC- after a sufficient amount has been saved as a reserve for repairs etc. I was hoping to use it to invest in future properties, held in different LLcs, but is it really possible/legal, without jeopardizing the sanctity of the LLC?

Thanks for the help

Jaksh

@Jaksh H. Have you looked into a regular residential bank loan? The terms on those are probably better than the commercial loan as long as your credit is good and the property is in reasonably good condition. You won't be able to close the property in the name of the LLC (it has to close in your name), but there's ways to still do that and still have the protection of the LLC. I'm not an expert on that, so you'll want to contact a good real estate attorney about it.

Also, commingling funds is more about using business funds to directly pay personal bills. You definitely don't want to do that or you don't really have a separate business that can be a shield against personal liability from the business activities. If you want to pull money out of the LLC for personal use, it's OK to pay yourself as an "employee" of the LLC, you just need to document it properly. I don't know how it would work for your LLC exactly, but for me, all managers would agree to a resolution granting me a paycheck, then the business would write me a paycheck according to the terms agreed upon and deposit it into my personal account. At that point, I can use those funds to pay personal expenses.

Hope this helps!

Hi Mark. Thanks for the reply. So far obtaining a personal loan seems a better deal financially vs the commercial loan for LLC. As you have mentioned I will have do discuss with a real estate attorney to see what options I have for the personal liability protection.

Thanks again

Jaksh

@Jaksh H.  

Welcome to the wonderful world of real estate. I was in your shoes at one point so I know the pain and struggles of starting out -- I am just outgrowing the "starting out" phase myself.

If I were you, I would utilize a typical 30/30 mortgage. MB Financial has a $10,000 investment property minimum so you should be fine with whatever property given your income. Once closed, quit-claim deed the property to your LLC, provided that you are the sole principal of the LLC (about $150ish fee depending on the state) It would be worthwhile to call your bank and see if this can be done.

That way, you have your 30/30 mortgage, added protection, and building equity, credibility, and most importantly -- cash flow.

***Also, at any point in this thread, you can type the "@" sign followed by the first few letters of someone's name in this conversation that you'd like to mention. Directly underneath this box there will be a dropdown to choose from the person's name you are looking for. This is a direct mention and will let people better see when you are talking to them. It is the equivalent of tapping someone on the shoulder and speaking to them as opposed to shouting into a crowded party of folks.

Cheers,

Evan

@Jaksh H.  @Evan Manship Be careful when you're quit claiming from you to LLC. Many loan contracts have a "due on sale" clause. In other words, if the title ownership changes (as it would with the quit claim), the loan becomes due and payable in full. Again, check with a good real estate attorney to avoid these headaches.

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