LLC refinancing

3 Replies

Hi BP experts

I'm planning on investing in Louisville, KY Real Estate in the near future. I'm a physician with good income and excellent credit, and I can easily qualify for a mortgage for the types of properties we'll be looking at. However, I want to invest within an LLC that I formed with my father, rather than having myself listed on the mortgage. I'm doing this to protect my personal assets from potential future lawsuits. I know this can cause an issue in obtaining mortgages since it's a brand new LLC. What about doing this in reverse? I can come up with enough cash to buy the property myself. Could I then refinance within the LLC, or would I still have to be personally listed on the mortgage? Thank you in advance for any input or past experiences you might be able to share!

With the full disclaimer that I am not an attorney, I believe you are asking 2 different questions.  

The property Owner is the person/entity likely to be sued. By having the LLC be the Owner (on the deed), you have established a line of defense between your personal assets and the company. Note that there are guidelines that you must follow (act like a business, don't co-mingle funds, etc) in order to preserve this protection. Talk to an attorney before you get started so you understand this!!!

The financing decision is largely unrelated. In general, you can get better rates/terms if you borrow in your name. However, these loans will show up on your personal credit report. If you want to avoid this, there are several local banks who will lend to an LLC (even a new one). Each will require the LLC members to personally guarantee the loan.

The part where the two are related is that the lender will want the borrower to be the owner. Thus, if you are taking title in the LLC name, you need to borrow in the LLC name. You can borrow / take title in your name and then quitclaim the property to your LLC, but you will want to understand the title insurance and due-on-sale implications. Again, talk to an attorney!!

Hello Michael. Buy using the LLC but they will equity your personal guarantee for the loan. Another option is to own a property outright in the LLC and use it as a line of credit to secure more.

There are nonconforming loan lenders but the rates are very high.  They are generally used by self directed 401k investors. 

How many properties do you want to buy? 

Thanks @Erik Hitzelberger - great advice. I'll definitely get some legal input on how to keep everything under the LLC before I make the move.

@Clay Smith - thanks. Since we're new to this, we'll probably just start with one or two - hopefully 2-4 plexes, but could also do SFR and then we'll see where things go!

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