Looking for some DSCR guidance

[Rob Sherrard]

Hello,

I'm looking for some general DSCR guidance on the lending and entity structure.

At a high-level, we're acquiring a short-term rental using a DSCR loan. The borrowing entity will be a clean, manager-managed LLC with just two members, my brother and me, and we'll both personally guarantee the loan. Separately, we're raising equity through a small friends-and-family group. That capital will be organized in a separate entity and contributed at the sponsor level, so the borrowing LLC remains simple. There seems to be some heartburn here when talking to DSCR lenders. Ideally, we want to make sure we structure this in a way that aligns with the lender's requirements around member limits, beneficial ownership, and source of funds.

Are we thinking about this the wrong way? Maybe there are lenders here who can assist, and or prior consumers of DSCR-based products that could help guide me on our structure ideas.

[Patrick Roberts]

If the investment fund LLC is not a member of the LLC that holds title to the property, then what is the nature of the investment fund LLC's relationship to the property LLC?

If the investment LLC is member of the entity that is going to hold title, then the funds for the downpayment from the investment LLC would be usable. The problem you'll run into here is most DSCR programs require at least one member with 25%+ ownership to PG the loan and they limit entities to 4 members totals. With a layered setup like this, you'll likely run into problems because of all of the "LP's" as members in the investment LLC.

If the investment LLC is not a member of the property LLC holding title to the property, then youre not going to be able to use the funds from the investment LLC for the deal.

Also, as Chris pointed out, this is not the usual structure for a deal like this. You're likely to need a securities filing or exemption for this as well.