Do you have to have an LLC to use hard money?

Rental Property Investor · Craven County, NC · Member since 2016 · 146 posts · 61 votes

Just spoke to a hard money lender. Among the documents he needs to vet my eligibility, he needs to see that I have a LLC because they will not lend to me personally. Is this typical?

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

Originally posted by @Erik Pfundstein:

This is interesting... so lets say you want to BRRR, and you use hard money for the intial buy and you place it into the LLC - when you do the refinance, will it be difficult to find conventional financing because lending companies wont lend to LLCs?

Very common in the stacking order of the refi is a deed from your LLC to your personal name.. happens every day

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Kerry BairdPro Member
Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
8y
Nope. Some want that entity and some do not.
1 Reply
Gareth Jackson
Real Estate Agent · Atlanta, GA · Member since 2017 · 48 posts · 32 votes
8y
@Padric Lynch My sister company is a hard money lender and they require borrowers to have a LLC as well.
0 Reply
Kyle J.
Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
8y
@Padric Lynch It can vary by lender but most prefer to lend to a LLC due to Dodd-Frank.
Here's a similar post on the topic: https://www.biggerpockets.com/forums/311/topics/231322-hard-money-lending-requirements-to-an-llc
2 Reply
Boris GrinbergBusiness Member
Lender · Paramus, NJ · Member since 2016 · 118 posts · 33 votes
8y
@Padric Lynch, hard money lenders typically require LLC as another way of validating that this is a business loan. But as a lender, we also lend for personal name deals.
Having said that, as individual investor, I buy properties with LLC to limit my personal risk. If you have questions, feels free to reach out.
1 Reply
Tarik Turner
Lender · Hackensack, NJ · Member since 2016 · 1k+ posts · 372 votes
8y
LLC's are cheap to start and protect the borrower, however not all HML require an entity
1 Reply
Yemi Na
Member since 2018 · 3 posts · 0 votes
8y
Most of them do require LLC. Depending on your state, that is almost $1000 before even getting started.
0 Reply
Padric Lynch
OP
Rental Property Investor · Craven County, NC · Member since 2016 · 146 posts · 61 votes
8y
@Gareth Jackson @Kyle J. @Boris Grinberg Follow on question: Can a hard money loan be used for a live-in flip/owner-occupied investment? If so, would the loan have to be in the borrowers personal name or is an LLC okay?
0 Reply
Kyle J.
Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
8y
Originally posted by @Padric Lynch:
@Gareth Jackson @Kyle J. @Boris Grinberg Follow on question: Can a hard money loan be used for a live-in flip/owner-occupied investment? If so, would the loan have to be in the borrowers personal name or is an LLC okay?
It's going to be up to the individual hard money lender but most will not lend on an owner-occupied property.
0 Reply
Grant Rothenburger
Investor · Taylor Mill, KY · Member since 2016 · 2k+ posts · 964 votes
8y
@Padric Lynch Most that I have talked to or researched want borrowers to have an LLC. Making one isn't hard, neither is hiring an attorney to do it for you.
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Garrett A. Van Allen
Dallas, TX · Member since 2017 · 27 posts · 9 votes
8y
It varies by Lender but I'd say no. We don't do that and I don't know anyone other HML's that do.
0 Reply
Cory J AndersonPro Member
Hard Money Lender · Middletown, NJ · Member since 2017 · 26 posts · 7 votes
8y
@Padric Lynch
I cannot speak for every state (I am based in the Northeast) but by in large Hard Money Lender's require this. The reason being is these are high interest commercial loans. Per the federal government and their post 2008 predatory lending laws, Hard Money Lenders cannot lend to primary residence, ever. To add a layer of protection, homes must be bought in an LLC.
That being said, there are special circumstances where a hard money lender may be okay with it. For example, if the property is already under contract and changing from your personal name to an LLC will cancel the contract. It is a case by case basis but it will have to be communicated very clearly that this is an investment project, and not going to be used as a primary.
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Jacque Fairbourn
Hard Money Lender · West Jordan, UT · Member since 2015 · 105 posts · 75 votes
8y
@Padric Lynch it is usually in your best interest to set up a separate LLC for every real estate deal that you do, so that if one of the them goes sour it doesn't impact the others. This also allows you to work with a variety of partners and teams and keep things better organized.
1 Reply
Erik Pfundstein
Rental Property Investor · Manchester, NH · Member since 2017 · 59 posts · 23 votes
8y
This is interesting... so lets say you want to BRRR, and you use hard money for the intial buy and you place it into the LLC - when you do the refinance, will it be difficult to find conventional financing because lending companies wont lend to LLCs?
3 Reply
Ron Luna
Olive Branch, MS · Member since 2018 · 9 posts · 4 votes
8y
Good question Erik, I was wondering the same thing.
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
Originally posted by @Garrett A. Van Allen:

It varies by Lender but I'd say no. We don't do that and I don't know anyone other HML's that do.
I would think its the opposite most require it few do not and its state specific as others have stated its to keep the lender from making an owner occ loan and to make sure its a commercial purpose loan which all but 12 states have declared are exempt from Dodd frank.
12 states does not matter owner occ or not you still have to be state licensed and follow the state rules.
Texas NO free flowing money there but not other states.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
Originally posted by @Erik Pfundstein:

This is interesting... so lets say you want to BRRR, and you use hard money for the intial buy and you place it into the LLC - when you do the refinance, will it be difficult to find conventional financing because lending companies wont lend to LLCs?
Very common in the stacking order of the refi is a deed from your LLC to your personal name.. happens every day
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
3 Reply
Erik Pfundstein
Rental Property Investor · Manchester, NH · Member since 2017 · 59 posts · 23 votes
8y
And then back into the LLC after the refinance?
0 Reply
David Weintraub
Lender · Berkeley, CA · Member since 2017 · 1k+ posts · 549 votes
8y
Question was: is this typical? Yes, it is quite typical. Likely.
0 Reply
Ian WalshBusiness Member
Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
8y
No. It can vary state by state though and lender by lender.
0 Reply
Garrett A. Van Allen
Dallas, TX · Member since 2017 · 27 posts · 9 votes
8y
Originally posted by @Jay Hinrichs:

Originally posted by @Garrett A. Van Allen:
It varies by Lender but I'd say no. We don't do that and I don't know anyone other HML's that do.
I would think its the opposite most require it few do not and its state specific as others have stated its to keep the lender from making an owner occ loan and to make sure its a commercial purpose loan which all but 12 states have declared are exempt from Dodd frank.
12 states does not matter owner occ or not you still have to be state licensed and follow the state rules.
Texas NO free flowing money there but not other states.
Guess we must be one of the good ones. Our company has managed to pull it off for over 17 years now. We encourage they form one for their own protection, but it's not required. To be fair, we operate through out, and exclusively in Texas.
1 Reply
Stephanie P.Pro Member
Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
8y
Originally posted by @Padric Lynch:

@Gareth Jackson @Kyle J. @Boris Grinberg Follow on question: Can a hard money loan be used for a live-in flip/owner-occupied investment? If so, would the loan have to be in the borrowers personal name or is an LLC okay?
The really short answer is no. Some HML's may be licensed and offer non-qm alternatives, but that's not hard money.
No hard money would pass the tests that would be presented by the CFPB, Dodd-Frank or RESPA for that matter.
Stephanie
1 Reply
Padric Lynch
OP
Rental Property Investor · Craven County, NC · Member since 2016 · 146 posts · 61 votes
8y
Originally posted by @Stephanie P.:

Originally posted by @Padric Lynch:
@Gareth Jackson @Kyle J. @Boris Grinberg Follow on question: Can a hard money loan be used for a live-in flip/owner-occupied investment? If so, would the loan have to be in the borrowers personal name or is an LLC okay?
The really short answer is no. Some HML's may be licensed and offer non-qm alternatives, but that's not hard money.
No hard money would pass the tests that would be presented by the CFPB, Dodd-Frank or RESPA for that matter.
Stephanie
What is "non-qm alternatives"?
0 Reply
Stephanie P.Pro Member
Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
8y
@Padric Lynch
Non QM or "non qualifying mortgage" lending is essentially a lending alternative to Fannie Mae or Freddie Mac. It's a way to get financing without providing the traditional tax returns or paystubs, but not the old "stated" income or no income verification. One form of Non-QM alternative would be using bank statements for income if you've been self employed for 12 or 24 months. Sometimes folks write off significant amounts of deductions and can't qualify conventionally.
1 Reply
Albert Ng
Rental Property Investor · San Jose, CA · Member since 2015 · 401 posts · 221 votes
8y
I would say it depend on the HML. In California, it's quite expensive to form an LLC.
0 Reply
Nghi Le
Investor / Lender · Seattle, WA · Member since 2014 · 1k+ posts · 730 votes
8y
It depends both on the lender and the state. NC is one of the few states that will require you to borrow hard money loans in an entity.
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