Multifamily Investment Property - how to get mortgage for LLC

Multi-Family and Apartment Investing
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Multifamily Investment Property - how to get mortgage for LLC

Bon Khator
Nutley, NJ · Member since 2015 · 10 posts · 7 votes

I am in process of buying my first investment property and need some advice. I couldn't find any lender who will give a conventional loan to a LLC so I got the mortgage in my name and the idea was to transfer it to LLC after closing. But my lawyer is suggesting that it can;t be done without lender's consent that the title has been transferred to a different entity and per my mortgage broker, while this is usual practice, lender wont give a written consent. I am sure I am not the first one to buy an investment property in LLC so what is the best way to do it.

Also, before suggestions are made to just get an umbrella insurance, I am also using LLC to create a partnership so need LLC not just for liability coverage.

Also, i could find one lender who was willing to give a loan to LLC but it was a commercial loan with a high interest rate..

More information about the property - 2 unit investment property in North Jersey with a contract price of 275k. 1 unit is already rented out and i is recently renovated but empty.

I am newbie so apologies if this was answered already - I did search but couldnt find anything and let me know if you need more information. Appreciate your advise/feedback. Thanks.

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Michael Worley
Investor · Carrollton, TX · Member since 2015 · 109 posts · 76 votes
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You need a residential loan (less than 5 residential units is not considered multi family in banking). There are many banks that are NOT huge banks that lend on 1-4 investment properties. You need to ask that question " Does your bank's loan policy allow for 1-4 investment properties" (it's pronounced one to four). Just ask the lenders, they'll know.

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  • Colleen F.Pro Member
    Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
    11y

    An LLC is a commercial loan. For commercial loans local banks may give you better rates then you get from national banks. Since you bought the place already I don't think you can just turn it over to an LLC without possibly triggering a due on sale clause where they cancel the original loan. Now this does not always happen but it does happen when you transfer to an LLC without the lenders consent. Search LLC and DOS or calling the loan. ALso if it is titled in your name too then the LLC isn't then owner you are.

    I would ask the lawyer how else you might handle the partnership. 

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  • Bon Khator
    OP
    Nutley, NJ · Member since 2015 · 10 posts · 7 votes
    11y

    Colleen - Thanks for your response. I will check and post the updates here...

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  • Troy Kerr
    US Navy. Aviation Structural Mechanic · Norfolk, VA · Member since 2015 · 36 posts · 3 votes
    11y

    I have a simular questions.  Could one create a property management company around the property?  And how would that work.  

    I would like to create a LLC for the management of my properties and real estate involvement. I would like to know if this would qualify me for real estate professional status.

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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    11y
    Have you talked to a CPA ? If you have a high personal net worth then incorporating LLC's may be beneficial. But starting to create them for properties and management companies you need to review. Also in many states you need to have a certain license to be a property manager which then means insurance and other costs. I do not believe owning one property and starting a property management company for it will be economically advantageous.
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  • Jared K.
    Real Estate Syndication and Property Management · Studio City, CA · Member since 2011 · 48 posts · 71 votes
    11y
    2 units is considered a residential property - non commercial. 5 units and above is considered commercial. Many lenders in the commercial space allow loans to be made to the LLC (and personally guaranteed by the operator - you in this case). But in residential 1-4 units most lenders don't allow this. What we do is close on the property in our names and Quit Claim the deed into the LLC. Sure it could potentially trigger the due in sale clause but as long as you are paying the mortgage it is highly unlikely they will. The bank doesn't want the property. They're not in the real estate owning business.
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  • Jerry Padilla
    Lender · Rochester, NY · Member since 2014 · 3k+ posts · 1k+ votes
    11y

    @Bon Khator

    @Troy Kerr

    Fannie Mae and Freddie Mac backed loans (Conventional) require the loan to be in an individual's name, and not an LLC. It will be very difficult to find a lender that will allow this and most likely it will be a commercial loan. You can quitclaim to an LLC after closing.... but this would risk the due on sale clause..... Although very rare, it is still possible. An umbrella policy is a great way to go. This is the route I went.

    Why a mortgage broker? Typically , they have additional fee's including and origination fee and have less ability to assist investors as many times they are required to follow both Fannie Mae and Freddie Mac guidelines and can't stick to one guideline. This makes it more difficult to take into consideration the rental income on the property.

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  • Chris Cambridge
    Investor · New York, NY · Member since 2008 · 187 posts · 36 votes
    11y

    True some lenders seem to have their head screwed on differently. Only when the borrower files BK their jaw drops to the floor. Investment properties should be closed in an LLC just that simple. Why some don't allow, not sure. Maybe they think tying up the borrower is security. There are lending programs that allow you to close in an LLC.

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  • Dennis Cuocci
    Investor · Hoboken, NJ · Member since 2016 · 11 posts · 1 vote
    10y

    @jared if the mortgage lender does impose the "due on sale", they are like to change the terms of the original mortgage, correct? since they don't want to take the property, they rather have the monthly payments come in

    question---- some lending agents (big banks) aren't too knowledgeable in this product of multi family (under 4 units) mortgage lending (under $1mill).....i went to PNC, CHASE, TD Bank all said i had to find a "commercial lender"  When i did find a commercial lender they said i was looking for too little money

    So where do i LOOK?

    I need a loan for a 3 unit multi family in NJ, 2 out of 3 tenants in place with signed leases.

    Asking price $750K

    It should not be that hard to get financing, and my other 2 properties turn a profit

    Anyone with suggestions of lenders or tips please advise.

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  • Michael Worley
    Investor · Carrollton, TX · Member since 2015 · 109 posts · 76 votes
    10y

    You need a residential loan (less than 5 residential units is not considered multi family in banking). There are many banks that are NOT huge banks that lend on 1-4 investment properties. You need to ask that question " Does your bank's loan policy allow for 1-4 investment properties" (it's pronounced one to four). Just ask the lenders, they'll know.

    1Reply
  • Daniel Cohen
    Investor · Millburn, NJ · Member since 2016 · 5 posts · 0 votes
    10y

    I recently called a half-dozen banks regarding getting a loan for flips and for buy/hold one- to four-family homes in Union/Essex county NJ, to be owned inside an LLC. Loan amounts $500K+ but under $1M. Lakeland Bank's commercial loan department said they'd do it. Investor's Bank residential dept said they might begin a lending product for LLCs for such loans in early Q2 of this year. Try those two banks. Also try calling other very small banks in your county.

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