Can LLC formed to buy real estate borrow from bank? Bankers/Lenders please help!

Question

I recently formed an LLC solely for the purpose of real estate investing. Question is, will a bank lend to my zero asset entity based on the facts of a real estate deal alone? For example, if I find a 75% occupied multi family property with positive cash flow will a lender lend to my entity based on the fact that the property should pay itself.

Will Barnard · Answer

Jesse and others who have interest,

You could get a non-recourse loan for your entity in your biz plan. Non-recourse loans will require 30% or more down, but are based soley on the property itself. They are mostly used for self directed IRA holders, but if you are getting good enough deals, you can use them for an entity purchase without your personal name on the loan.

Jesse Ramirez · Answer

HML's would jump on this in most cases if it is a short term fix and flip. If you're planning to hold then local banks should be able to fill your needs considering both properties are paid off. The equity alone should do, LLC or not.
            Wouldn't you agree Michael?

Jesse Ramirez · Answer

Thanks for the input gentleman. Well the goal is to find a property that will pay itself almost without a doubt. With a DSCR of 1.25 and above. 
The down payment wouldn't be a problem, I would either ask the seller to carry a second note or front the down payment myself. 
If I found a property with great financials would I have a problem having my LLC get approved without my personal credit being a factor? If so, how would I go about marketing my property to lenders.

Christopher Wallace · Answer

Jesse,

Typically non-recourse loans are for very large amounts. The ones that I have seen are only for 1M+. I have never seen a non-recourse loan on a small SFR. I read through the article for the link that you posted and in theory it will work, but as I said try calling around to lenders and asking them for a non-recourse loan on a 70K property and see what their response is.

Jesse Ramirez · Answer

Found an article on non recourse loans involving iras,..... i'm leaving a link to the article here,
http://ezinearticles.com/?What-Is-A-Non-Recourse-Loan-And-When-Are-They-Used?&id=973192

I got in contact with the author of the article, Kevin Cook, and he was more than helpful in answering my questions. 
There are several types of non-recourse loans, and depending on the bank the terms can vary tremendously. 
In general, ira non-recourse loans don't allow a 2nd note or mortgage on the property. The good news is that most  non-recourse loans out there that don't involve an ira do allow the seller or a private party to carry a 2nd note on the property.  Typically there is no need for a credit check or anything else that may disqualify an individual based on there personal background.

The only thing that matters to the lender is the deal itself!

Will Barnard · Answer

Jesse,

That is a good question and I don't have an answer for you. Never tried that or asked so I don't know. Perhaps not as they would be in first position and therefore protected, but by today's standards, they may have an issue with it as your debt coverage ratio could be out of wack and concern them with your investment not producing enough cash to pay all the bills.

Contact a non recourse lender and ask. Post your findings here for the benfit of all.

Jesse Ramirez · Answer

Sounds good. Would they consider financing if the buyer asked the seller to carry that 30%? I don't think it would matter, but nothing is as it seems right now.

Christopher Wallace · Answer

Jesse,

What we are seeing is an over-reaction to the market. Nobody wants to be the person that signs their name on a new loan that goes bad. It looks as if this is how it is going to be for awhile. I suggest to all of my customers to get their team (mortgage, appraiser, inspector, property management, etc) in place and then stick with them. This business is about building relationships.

Jesse Ramirez · Answer

Good point Chris....if you don't mind me asking, do you see yourself taking these same actions as a banker? 
                        Do personal relationships with bankers even matter anymore or are all the decisions left to corporate?

Jesse Ramirez · Answer

Amazing, you would think they would go out of there way to take care of the good guys. What are these people thinking

Can LLC formed to buy real estate borrow from bank? Bankers/Lenders please help!

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