Mortgage and LLC

21 Replies

Hi I'm trying to buy rental properties for 80, 90k. Wells Fargo is telling us they can not give loans with the title being in the LLC, it has to be an individual loan. They only do LLC title loans for above 400k. Is this true? Does everyone get an individual loan then transfer the title after closing?

Hey @Andrew P. ,

As a rule of thumb, a commercial loan 'mortgage' will get you far less better terms than an individual one. I did not know about the 400k part though, is it the only bank you've approached?

Hi Guyoz Golan

Ah got you. Yes this is the only bank we have approached but are now locked in since we are in the final stages of approval and they just sprung this on us. We heard people typically put their properties into LLCs so thought it wouldn't be an issue.

I'm hoping to see some good comments on this subject. I have a rental house with a mortgage on it. The loan and title are in my name. I've thought about creating an LLC and changing the title from my name to the LLC, but I've heard that might violate the terms of the contract. Then my mortgage holder could call the loan due or foreclose.

The best advice I can give you all is to seek the counsel of a good RE Attorney in your area as well as your tax professional (CPA...not H & R Block.) This is a multi-dimensional issue with lot's of layers, and there is no cookie-cutter way to do this. A lot will depend on individual circumstances. In some respects, LLC ownership may be a benefit, at the same time it is not a benefit for other reasons. Competent legal and tax professional counsel is required in this area.

Medium rei short colorCharlie Fitzgerald, REI Investor Funds, LLC | [email protected] | (913) 904‑8090 | http://www.REIInvestorfunds.com

Hi @Andrew P.

I am a loan officer and maybe I can help a bit.

When you want to get a loan for a rental property you have some option:

1- FHA loan (this one work best on more that one unit less than five units like Fourplex,

You need to live in one of the unit for at least one year, but you only need 3.5% for a down payment (you will pay for the mortgage insurance upfront and monthly) the title need to be held under a person and not an LLC also you can just have one FHA loan at a time.

2-Conventinal loan, you can get up to 10 finance property, it has the better team an interest rate need 20% down for the first 4 properties and 25% down after that, you need to have a reserve requirement for each property before you can buy the next one. The title and the loan it need to be held under a person and not an LLC.

3-commercial loan, this type of loan dose doesn't have any written guideline and its different from bank to bank on the limitation, terms and other stuff. Because there is no landing law guideline for this type of loan you need to make sure you understand them correctly and make sure it will work with your plan. This will hold under LLC or corporation.

We have another type of loan also like portfolio loan which will work for rental propertys and the title can be hold under a llc or personal name.

Hop this help.

If they knew you were buying in an LLC from the beginning shame on them. This is an obvious issue any loan officer should have spotted from the get go.

It is commercial loan because it is a loan to a company not an individual. Smaller local or regional banks are more likely to make you a commercial loan.  You want a "portfolio Lender", one who keeps their loans in house and doesn't sell them to the secondary market.

Medium crab1 copyNed Carey, Crab Properties LLC | http://baltimorerealestateinvestingblog.com/

I know some of the big banks won't even mess with smaller properties under 100k like this but had not heard of any problems with an LLC.

Originally posted by @Andrew P. :

Hi I'm trying to buy rental properties for 80, 90k. Wells Fargo is telling us they can not give loans with the title being in the LLC, it has to be an individual loan. They only do LLC title loans for above 400k. Is this true? Does everyone get an individual loan then transfer the title after closing?

Each bank will vary. What type of property? 

Originally posted by Account Closed:
Originally posted by @Andrew Plodkowski:

Hi I'm trying to buy rental properties for 80, 90k. Wells Fargo is telling us they can not give loans with the title being in the LLC, it has to be an individual loan. They only do LLC title loans for above 400k. Is this true? Does everyone get an individual loan then transfer the title after closing?

Each bank will vary. What type of property? 

They are mostly 2 unit houses. Yes Wells knew up front about the LLC but our now forcing us into a personal loan. I read on their website they do commercial loans for 50k and above.

I don't see anyone mentioning the title aspect of your question. While you are at this point, with so much time invested in the deal, you may want to continue on buying the house and keeping it titled in your own name, and getting extra insurance for the liability aspect, which is a benefit of an LLC.

Our CPA advised us to write to the lender for permission to transfer title into an LLC for asset protection purposes. We would use a land trust...different topic...but read on.

IF we transfer title without written permission from the lender, we would trigger the "due on sale" clause and they can "escalate" the loan. So there is a financial risk to closing in your own name now, and then transferring title to the LLC later. Wells Fargo pays attention.

Kerry Baird, UR Home Investments | http://www.urhomeinvestments.com

Originally posted by @Andrew P. :
Originally posted by @Greg F.:
Originally posted by Andrew P.:

Hi I'm trying to buy rental properties for 80, 90k. Wells Fargo is telling us they can not give loans with the title being in the LLC, it has to be an individual loan. They only do LLC title loans for above 400k. Is this true? Does everyone get an individual loan then transfer the title after closing?

Each bank will vary. What type of property? 

They are mostly 2 unit houses. Yes Wells knew up front about the LLC but our now forcing us into a personal loan. I read on their website they do commercial loans for 50k and above.

Perhaps they are/were concerned about the LLC demonstrating the ability to service the loan hence require the personal guarantee? If there arent any tenants in the house (lease in place), it may be an issue. The LLC has adequate assets/collateral? Be certain whoever you are dealing with at the branch is familiar with how to structure what you are trying to do.

I have 10 sub-$100k properties that I bought with my LLC (Yes, in my LLC's name). However, it's not a typical 30-year mortgage at 4% like you can get in your name. It's a 20-year mortgage with a 5-year call and the interest rate is closer to 6%. It's a "business loan" or "In House Loan". It's not an FHA or Freddie/Fannie type deal. The property is still held as collateral and I personally guarantee the loan. I do invest with my father and brother so we're all in the LLC which is why it makes sense the way we do it. If it was just me I probably would have done more research around what putting it in my own name entails as the terms are much better.

If you really want to put it in the LLC ask if they are willing to do a business loan around the terms I mentioned above. Since it's Wells Fargo, probably not. I work with a small bank that only operates in the state I invest in. If you are looking to use a national bank, you're just going to get a "do it this way, or go away" type of response.

Find a small bank (local or state wide, not regional or national).  Talk to them about what you're doing.  You'd be surprised what you can work out with those types of banks.  The national banks have certain ways of doing things and a traditional mortgage in your name is easy and fast.  Plus there is no shortage of that easy and fast business so unless you are talking much bigger bucks, they just don't want to spend the time.

Originally posted by @Justin B. :

I have 10 sub-$100k properties that I bought with my LLC (Yes, in my LLC's name). However, it's not a typical 30-year mortgage at 4% like you can get in your name. It's a 20-year mortgage with a 5-year call and the interest rate is closer to 6%. It's a "business loan" or "In House Loan". It's not an FHA or Freddie/Fannie type deal. The property is still held as collateral and I personally guarantee the loan. I do invest with my father and brother so we're all in the LLC which is why it makes sense the way we do it. If it was just me I probably would have done more research around what putting it in my own name entails as the terms are much better.

If you really want to put it in the LLC ask if they are willing to do a business loan around the terms I mentioned above. Since it's Wells Fargo, probably not. I work with a small bank that only operates in the state I invest in. If you are looking to use a national bank, you're just going to get a "do it this way, or go away" type of response.

Find a small bank (local or state wide, not regional or national).  Talk to them about what you're doing.  You'd be surprised what you can work out with those types of banks.  The national banks have certain ways of doing things and a traditional mortgage in your name is easy and fast.  Plus there is no shortage of that easy and fast business so unless you are talking much bigger bucks, they just don't want to spend the time.

Thnx for the further in depth info Justin. Would you care to elaborate on the loan terms? what percentage down did they offer you? debt ceiling? 

The first few loans I took out were at 15% down.  Amortization is over 20 years, interest rate has varied between 5.25 and 6%, and balloon payment is due after 5 years (We just re-finance at that point).  Any other specific terms you were looking for?  Your results may vary as I have a pretty good relationship with my bank at this point (having done 10 loans and have over 5 years of on-time payment history).

The big banks (WF, Chase, BofA, etc.) do business and commercial loans but focus on much larger clients. You are unlikely to get that type of loan from them. If you want to do a loan directly to your LLC then you should pursue that through local/regional banks.

If you do not have time to pursue other loan options right now I would just close in your name and either go with increased insurance or pursue options to move the properties into the LLC later. These will all involve refinancing or risking having the loan called, though. Putting them into the LLC is mostly and asset protection play and maybe an estate move so, as recommended above, consult with some professionals and make sure it is worth the added expense and hassle.

Originally posted by @Edward B. :
.... Putting them into the LLC is mostly and asset protection play and maybe an estate move so, as recommended above, consult with some professionals and make sure it is worth the added expense and hassle.

In some cases it is more than asset protection. If feasible, you typically don't want to have debt from business investments (which could be substantial) to be counted as personal debt; that may have its disadvantages when you then have to finance personal acquisitions.

We had the same problem. In the end we got an individual loan for the multi-unit we were buying but we operate it through the LLC - i.e., the LLC writes the checks, receives rent, and owns equipment necessary for maintenance. When we get the property paid off, we'll transfer it into the LLC and use it as collateral. The upside to me is that the tenants and property manager interact with the LLC and I keep all the accounts separate, which keeps things organized and professional. The LLC is an additional insured on all the policies related to the property.

Originally posted by @Justin B. :

The first few loans I took out were at 15% down.  Amortization is over 20 years, interest rate has varied between 5.25 and 6%, and balloon payment is due after 5 years (We just re-finance at that point).  Any other specific terms you were looking for?  Your results may vary as I have a pretty good relationship with my bank at this point (having done 10 loans and have over 5 years of on-time payment history).

 That's interesting! Most of the banks I know will give me a commercial loan (mortgage) on a far worse terms. Especially in Israel where the typical commercial mortgage requires 50% down. I'll look into it, thank you.

Account Closed,

That is also true. In fact, that is exactly what I am trying to do right now, finally get some of these loans out of my name.

I am a believer in using LLCs for real estate investing. I think they are worth the hassle and expense for all of the reasons mentioned (AP, estate planning, business credit, professionalism, etc.).

But alas, there are many successful investors who think they are not worth it, especially when you are just starting out. You need to research it and decide what is best for you. They can be somewhat pricey to set up if you want to ensure it is done properly and accomplishes what you intend for it to do, and then several hundred dollars per year to maintain. However, I believe in the added protection and the flexibility they give you. Often times banks want to see a business that has been around for a couple of years before they will consider lending to them. That is not the time to set up your LLC.

As for Israel, I know nothing about real estate over there.  I'm strictly talking US.  Most of the advice you get here on BP is U.S. based advice (unless they say different).  I have no idea if any of it would translate to other countries.  Sometimes it doesn't even apply to a different state.

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