Though I live in Boston, I found a property in SC, near where I grew up. It's a 60k try-plex that will cash flow very nicely. With the rent being $500 per unit, y all in expenses will be around $800 a month, and it will net about $700 a month. My bank does not do investment properties out of town. Yet after reaching out to a local bank in SC, they gave me a response that I wanted your insight on. But first, I'll give you a summary of our finances.
I have a 4-member LLC (25% owner by each member) - the 4 of us each have great jobs with a total annual income of about $280k. We have put around 50k in an LLC account to get our real estate started. However, we do not have a net worth of $3M. This is only our 3rd real estate deal since we just started. See below for the banks response of why they might not be able to do the deal. I pushed back on them and basically reminded them of how much money we make and that this is only a 60k deal. They should give me a final response today.
This was the banks response on why they don't do deals with multiple members...
"Per guidelines Closing in a LLC is only allowed with a single member LLC and if the member/ borrower meets high net worth guidelines. High net worth is defined as having $750k in investable assets or a net worth of $3M."
I assumed having multiple LLC members makes the actually LLC stronger and a more reliable entity to loan to?
What are your thoughts?
When you want to get a loan in an LLC you're getting a commercial loan, not conventional. They're saying their bank only does this for single member LLCs (where they're really dealing with only one person) and the single member meets their criteria. Try other banks.
A loan to a business for the purpose of acquiring RE can be referred to as a commercial real estate loan. Having multiple members in an LLC is not uncommon.
To take a step back a bit, there are different types of institutions that specialize in different types of lending. Perhaps that bank does not offer your specific type of loan. There are also varying degrees of experience and acumen among individual lenders within the same institution. Perhaps the lender you met is new and doesn't realize that their bank does offer your type of loan. This is why it is often advantageous to keep searching (even if it's to try another branch or lender within the same bank you were at). I imagine that @Jon Holdman had similar reasons for recommending the same. Don't be discouraged by being turned down by any one lender.
Remember, it is their job to lend money. Approach them, respectfully, knowing you have an opportunity to share. You get your loan, they make progress in their lending goals. Win-win.
When you find a lender who takes the time to listen to you, explains and provides you a plan with options, and then executes the plan you decide upon, keep them.
@Warren Buffett (can I do that?) says he looks for three things when hiring an employee: Someone who is ethical, smart, and energetic. Those can be considered qualities of a good lender as well.
Best of luck and let us know how it goes!
Agree with what has already been said, try other banks or even try to find someone hire up at the bank you were dealing with. all my properties are under llc's and i get commercial loans for every one. if you are dealing with a Realtor in the area, ask them what is a good bank to deal with, they will know off hand and tell you the right person to see. banks usually meet with realtors to get them to recommend their banks for loans.
@Jason Hodges Try Berkshire Bank. They are based in MA and I have clients here in CT that have gotten loans in LLC's through them.
@Kiley Nakamura All excellent advice. Very grateful
A few things:
- When you approach a bank, ask for the commercial lending department, not the mortgage department
- approach small local banks, not big ones.
- Ask the commercial lending department of banks local to you, if they lend on out of state properties before you waste any more time.
- Also, approach small local banks in the area of the property. Ask the commercial lending department if they lend where the multiple members of the LLC are all out of state before you waste any more time.
- You may have trouble with the last one, I had similar problems on an out of state purchase in Augusta GA, so I paid cash
Very good advice!
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