Financing Properties in an LLC

East Lansing, MI · Member since 2020 · 13 posts · 5 votes

Hi BP community,

I was hoping for guidance on financing a single-family property through an LLC. I am curious about how this can be accomplished and the terms of the loan (I understand I don't need an LLC but I know many investors do this). I want to know how easy it is to finance through a traditional lender or if finding an alternative financing method is a better way to go.

I appreciate any help!

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Reggie ReardenPro Member

Rental Property Investor · Aiken, SC · Member since 2019 · 129 posts · 44 votes

I have sfh's with a local credit union under my LLC's. The terms are 15 to 20 yrs and higher interests. That may not be the case for everyone but that's how it is for me. My rate with this credit union is 2.69% for my primary home and 4.97 for my REI's.

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David M.
Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
6y
@Josh Jackson
You are asking about if the LLC holds Title? Then you need a commercial loan. The vast majority of lenders only deal with residential loans. Those loan officers will even recommend that you deed the property to yourself, issue loan, then deed back to Title. My layman's advice is dont do it. That defeats the purpose of the LLC.
Note, it’s not that you have a commercial property. It’s that a legal entity holds Title thus won’t pass muster for a conforming loan.
So, you just need to find the appropriate lender.
Does that answer your question?
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Josh Jackson
OP
East Lansing, MI · Member since 2020 · 13 posts · 5 votes
6y
David that helps a lot! I would want to hold the title in the LLC and keep it there. Do you know in general what the differences would be for this commercial type loan? Would a larger down payment be required and/or higher interest rates?
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David M.
Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
6y
@Josh Jackson
Not really as I don't deal with them. You can see posts here on BP about people asking about better. Supposedly, there are a lender or two out there who will do standard looking 30yr fixed. Otherwise, many times it will be something like a 20yr loan with a 30ry amortization payment schedule (so after 10 years you have a balloon payment essentially or have to refi). Rates are probably 2%+ higher than standard residential rates. You just keep paying for the LLC's protection...
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Jitendra Mandalia
Member since 2019 · 8 posts · 2 votes
6y
We had tried this process having a single family property titles under LLC. Its tricky as unless LLC has consistent income of few years (each lender would have different requirements) there is no way to get loan under LLC name. If it has income then it is doable. We wanted to just have LLC to hold real estate property titles and we couldn't do that due to loan requirements didn't meet and had to take loan and property under individual's name. One can transfer property later to LLC, after purchase, but that is not advisable and is not what bank would like as loan is under individual's name and property title is not.
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David M.
Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
6y
@Jitendra Mandalia
RIght... And doesn't the bank either way make you sign a personal guarantee for the loan? Its not necessarily the end of the world for asset protection, but this commercial loan is still going against you. But, thats how you get the loan under the LLC. I haven't really heard of anybody else really able to get the bank to loan solely to the LLC...
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Josh Jackson
OP
East Lansing, MI · Member since 2020 · 13 posts · 5 votes
6y
I have done some additional research and think my best bet to have properties in an LLC might be a portfolio lender. It sounds like dealing with a conventional lender might make this harder or not possible in some circumstances.
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David M.
Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
6y
@Josh Jackson
Of course a conventional lender won't be able to help you. they pretty much do residential loans. You need to talk to a local bank or a commercial lender. It doesn't have to be a portfolio lender.
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Nic S.Pro Member
Danville. CA · Member since 2017 · 313 posts · 221 votes
6y
@Josh Jackson why are you trying to finance through LLC?
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Reggie ReardenPro Member
Rental Property Investor · Aiken, SC · Member since 2019 · 129 posts · 44 votes
6y
I have sfh's with a local credit union under my LLC's. The terms are 15 to 20 yrs and higher interests. That may not be the case for everyone but that's how it is for me. My rate with this credit union is 2.69% for my primary home and 4.97 for my REI's.
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Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
6y
Originally posted by @Reggie Rearden:
I have sfh's with a local credit union under my LLC's. The terms are 15 to 20 yrs and higher interests. That may not be the case for everyone but that's how it is for me. My rate with this credit union is 2.69% for my primary home and 4.97 for my REI's.

That's not bad, Reggie. Do they also make you provide your financials to them every year? That's always fun.
My commercial loans have all been 5/5/20 with annual reporting. Riskier and a pain. I went from 3 to 0 in 2017.
I only hold commercial assets in LLCs. Dealing with commercial loans on residential property for a false sense of asset protection? No way.
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Reggie ReardenPro Member
Rental Property Investor · Aiken, SC · Member since 2019 · 129 posts · 44 votes
6y
@Steve Vaughan the bank does not make me provide them with any financials, although they are supposed to annually. They have never asked. That maybe because I buy more properties with them throughout the year anyway. I have a couple of commercial buildings under separate LLCs and a few SFHs under a separate LLC. On top of that, those LLCs are controlled by a holding company. I wanted complete separation from all assets. The primary reason for the SFHs being in LLCs is the type of w2 employment I have. I have constant credit monitoring and don't want my name associated with any of my properties or businesses. I just laid out everything to my attorney and told him to set it up as if it was his own.
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Josh Jackson
OP
East Lansing, MI · Member since 2020 · 13 posts · 5 votes
6y
@Nic S. I want to own many properties in the future and I have heard of entity structures like @Reggie Rearden talked about above. I like the asset protection for when my personal assets grow as well as tax benefits of owning an LLC with a holding company. Reggie, could you please talk more about your structure and how you created it? Did you talk to a tax advisor and or attorney?
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Reggie ReardenPro Member
Rental Property Investor · Aiken, SC · Member since 2019 · 129 posts · 44 votes
6y
@Josh Jackson I definitely spoke to both. I own a tax and bookkeeping business. I had one of my tax advisors speak to our attorney and they structured everything while working together (I know nothing about taxes or accounting). I basically went to the attorney and told him our current situation and where I expected to be in years 1, 3, 5, 10, and long term. He took into consideration the fact of having kids while structuring due to legalities of probate (Hopefully a LONG ways away) and my entire financial and business model. I’m a firm believer in being 100% transparent with the attorney and have a game plan when you meet one. This will enable the attorney to set stuff up based on YOUR situation. Essentially, I have a business plan and model as well as annual goals I want to achieve. This makes it easier when meeting with attorneys in my opinion.
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David M.
Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
6y
@Josh Jackson
There really isn't a tax advantage to having a LLC. You take the same deduction regardless. There are advantages/necessities when there are more than one persons, like a partnership, so that the profits/losses can be divided cleanly. They are pretty much all pass through entities. It sounds like you are just doing passive investments (i.e rentals) so you shouldn't be doing anything fancy. For example, if you had a good deal of active income than sometimes electing to be taxed as a S Corp (N.B. its a tax status, not a legal entity) has benefits since after paying yourself a "reasonable" salary, the rest of the profits can be sent to yourself as dividends, thus avoiding self-employment taxes. Its still a pass through entity, but just has some additional overhead (i.e. costs) to maintaining the S Corp status.
Remember, LLC/legal entities really only provide asset protection, not tax benefits, when on the subject of real estate investing (especially passive activities). Its the asset protection that you are paying for in direct and overhead costs.
Good luck.
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David M.
Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
6y
@Josh Jackson
Oh, are you looking to invest out of State as well? If you are going the LLC route, you need to register each LLC in the State that hte property is located. Remember, these are legal entities established/registered by State. So, if your LLC isn't registered in the State, you'll have no legal standing in a court.
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Douglas T.
Member since 2020 · 16 posts · 14 votes
6y
In general, purchasing a property in your own name and then transferring title to an LLC without refinancing it under a "commercial" loan (which is what it will be deemed, as mentioned above) poses a few problems, which is likely why the other replies have correctly said "don't do it". First, if the lender finds out, they can trigger the "due on sale/transfer" provision that is in almost every residential mortgage note. It is not a 100% chance they will, but it's not a 0% chance either. Second, if you transfer the title but not the insurance, the insurance may not be valid to protect the LLC against loss. So, you must transfer the insurance. Doing so will likely trigger a notification to the mortgage holder, leading them to say "no can do" and calling the loan. Setting up an LLC is very easy but it is is ill advised to do at least your first one without speaking to a good attorney and your tax advisor beforehand. It can be done with a refi to a commercial loan, and then it WILL protect you from personal liability against losses caused on the property, most especially injury to others. But it will not protect you from the loan, because unless your banker loves you (or is an idiot) they will require a personal guaranty. If anyone has info contrary to what I said I'd sure be happy to hear it. Thanks
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Joan-Marie Pagan
Cape Coral, FL · Member since 2018 · 38 posts · 9 votes
6y
@Reggie Rearden wow this was super helpful
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Douglas T.
Member since 2020 · 16 posts · 14 votes
6y
Glad to help. If anyone knows of lenders that will finance investment SF house purchase in LLC, I'd sure love to hear some names. I know they are out their but I've only bought one home so far and did that through the "buy in my name. hold for a while and pray no personal injuries on property while rates came down, created LLC, refi'd house into LLC with commercial loan" route. It's expensive to refi just to get house into LLC, but worth it to me to not have to worry about the personal liability or even getting dragged into litigation and trying to get umbrella policy carrier to pay!
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David M.
Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
6y
@Douglas T.

@Joan-Marie Pagan
Don't forget it gets worse when you transfer back and forth. Depending on how you do it and what your Title Policy says, but you may also invalidate your Title Insurance. The big kicker which is my pet peeve is it may look like you aren't operating the LLC separately, and its become you "alter-ego." In my layman's mind, that basically pierces your corporate veil and now you are sitting there "fat and happy" thinking you have the asset protection of the LLC but actually don't. Oh, and don't forget, you really should have insurance inside the LLC. If you are ever sued, it should be cheaper in the long run to let the insurance company lawyers fight it.
...Oh wait... if i held it personally I'd have insurance...
Good luck.
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Alex BekezaBusiness Member
Lender · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
6y
@Josh Jackson
There are commercial/non qm options out there for investment properties that will allow you to vest title in a LLC, C Corp, or S Corp. These aren't backed by the GSEs like Fannie/Freddie and instead rely on secondary market investors so the rates are certainly higher but figure there are several other advantages besides the ability to vest title in an entity such as no DTI requirement (based on DSCR instead), no tax returns needed, no limit on the # of financed properties you own, general underwriting flexibility, etc etc.
[email protected]818-606-8823
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Douglas T.
Member since 2020 · 16 posts · 14 votes
6y
Thank you!! I will keep that, and you, in mind.
1 Reply
Josh Barbee
Member since 2020 · 3 posts · 0 votes
6y
@Reggie Rearden
Hello sir saw your comment based on funding under your Llc at a credit union. Did they use your personal credit to back or did they strictly work with your Llc? Thank you sir.
Josh
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Jaspreet Baveja
Lender · Palo Alto, CA · Member since 2017 · 142 posts · 91 votes
6y
@Josh Jackson - I would highly recommend leveraging your network and relationships to get Private Money to get started and seasoned, and then move over to the Commercial Lending / Portfolio Loans with more properties under your belt. It will help you gauge your cash flow and prove your business plan to the lender as well. Best of luck!
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Josh Jackson
OP
East Lansing, MI · Member since 2020 · 13 posts · 5 votes
6y
@David M. It is my understanding that if my portfolio grows big enough through my LLC and I spend more time in the business that I can start "acting" like a company. So the tax benefits I mean are potential meal deductions where I talk about my business and distributions to avoid self-employment taxes (I am just learning about these structures and the tax law so please let me know if my assumptions are wrong).
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Josh Jackson
OP
East Lansing, MI · Member since 2020 · 13 posts · 5 votes
6y
@Alex Bekeza thanks for this information, it is actually very helpful! Sounds like I will just need to shop around a lot and expect a higher interest rate.
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