LLC or no LLC for triplex purchase amongst 5 member partnership?

Question

Four friends and I want to begin our multifamily investing journey together and are interested in purchasing a triplex for our first deal. Our initial thoughts is to create an LLC for the purchase. But in terms of obtaining financing, can our LLC (with all five of us as members of the LLC) obtain residential financing (four units or less) or does the mortgage have to be under an individual or individuals? Researching online didn't yield the answer. Just trying to get a sense for what is the best way to structure our 5 member partnership, from a practical, legal, and financing perspective. Thanks BP!

Jon Reed · Answer

Echo what @Casey Christensen said just to drive home the point.

With so many people involved you would be ten shades of crazy to not get an LLC created and some solid articles of organization defined to figure out how you will handle all the different situations that WILL occur when one of the five you gets mad, feels like they are working harder than the rest, has covered more expenses than someone else, or one of a million different issues.

Before you all even buy your first property you all need to talk about the worse case scenario and agree how you want to handle it. Talking about it now when you are all stoked and friendly will be SOOoooo much easier than when you all hate each other.

Casey Christensen · Answer

@Kevin Park - I would definitely get an LLC written up to lay out the partnership between you all and for all of your protection. It may be difficult to obtain financing on it in the LLC, but even if that is difficult you could consider buying it in one or a couple of your names and then using an attorney to transfer it into the LLC after its closed. I would try and find an attorney and get some information before you went that route, but it could be an option. Good luck in whatever direction you go.

Jason Herbert · Answer

With it not being your primary residence you will have a tough time getting residential financing weather it’s in a LLC or not, I’m going. I’m going through the same thing right now with a cash out refi. With that many partners I would suggest a LLC for the protection and know that your more than likely going to be getting commercial financing.