How are you all. My name is Johnny. I just wrote my first post yesterday, and now I am back with more questions. So far people out there is being very helpful. I think is incredible that some people with so much experience in RE is still willing to put out some of their busy time, and guide newbies as I. Thank you so much for that.
Here is my question. I am in the process of getting my first multifamily. I am targeting Jersey City, Union City and West New York. Since I want to start buying and hold, for the long term, Do I have to form an LLC before I buy anything or is better after I bought it? I said this, because I think I read in some place that when you are new or is your first property it is very hard to get a mortgage on an LLC, so it is easier to buy the property under my name, and after that make the transfer to an LLC. Is that correct?
What should I do first in your opinion?
Thank you all.
There are a few points to consider @John Tappi. First of all, are you buying this property with a residential mortgage? If so, you will have to close in your personal name. If you create an LLC and close title in that entity, you are looking at getting a commercial mortgage. The guidelines are different for both types of loans, so I would suggest you speak with a few lenders to see which best suits you.
If you do close in your personal name and then transfer title to your LLC, you may very well violate the due on sale clause contained in your mortgage. If the lender determines that a transfer was made, they have the right to call your loan due. Most investors will tell you that if the payment is being made on time, the chances of them calling your loan due are very small, BUT there is still a chance you need to be aware of.
I would start speaking to some lenders first to line up and determine your best strategy based on your needs.
Thank you Dan. I am reading your posts for a long time, and your comments are always on point. You are always willing to help newbies.
Would be possible for a starter as me to get a commercial mortgage? Honestly, my goal is to buy and hold, acquire rental properties. So I know that sooner or later I am going to form an LLC. I had an understanding that it was very difficult to get commercial mortgages when you want to get your first property. At the moment I just have the pre-approval from a bank, so I can search for properties and realtors know I am a serious buyer. I am about to contact a mortgage broker, first because someone in another post told me they can be really helpful, and second because he might be able to get this commercial mortgage much easier than a regular bank.
Thank you all
@John Tappi if the house is going to be under LLC, you usually need to put down 25% for investment property. But for primary, you could do 3.5% at lowest.
The tax reporting may be different as well. For example, If you are using the place as primary home, you could save on capital gain tax when you sell it. But it will get a little complicated if the place is under LLC.
Thank You Diana. It makes sense. My goal at the moment is to buy and hold. Certainly we are going to live in one unit for a while, but my wife and I are willing to move as we get more properties. We are on the same page on that.
What is your experience about people like us that can put a 25% down for investment property, Do you think it should not be a problem to get a commercial mortgage?
@John Tappi there a many ways to set this up. you can consult with an attorney and explain to him your strategy and he will be able to lead you properly with when you should set up the LLC. As you grow you may want a holding company with multiple LLC's (either one per property or a few, say 250K worth of assets in one LLC) then your holding company would show interest in those LLC's. Like I said an attorney will be able to direct you best.
I do agree when starting out buying in your name may be easier and then transferring it into an LLC after. Only thing to keep in mind is if the note is called be prepared to handle it appropriately.
Best of Luck John!
@John Tappi welcome to BP. To add to @Dan Barli 's spot on post. The decision on how to vest title may come down to the best loan product available.
There are commercial loan products available to first time investors although they are normally subject to a slight LTV reduction given the lack of experience. Expect to put 30% down unless you have experienced partners on the deal.
Glad people are noticing :) I'm always happy to help.
Great tips on this post, thanks!