Owner finance deals to an entity instead of an individual

11 Replies

Hi All, 

Has anyone ever tried an owner finance deal to a corporation instead of an individual? We have the goal to pick up 12 units next year in our business name and not the personal name and we will have the downpayment for about 8 of those units. We want to try our first creative deal in Columbus as well next year and I'm wondering about this specific part of it. Any advice would be much appreciated! 

Rob

Hi Rob. Long time, no text...lol..

Here's the deal on owner financing to a LLC. It can be done, but must have personal guarantee rider on it. Why? Because you form a LLC to avoid liability. Any attorney is going to tell you not to lend to a LLC. There's no one to go after should the loan default. To avoid that, you personally guarantee the loan. That way, you can put the property in the LLC for title purposes (aka: still have the protection against litigation from tenants) but the lender can still come after you personally, should you default.

Good luck!

Tristam Griffith

This post has been removed.

@Tristam Griffith , I think he is borrowing the money so the personal guarantee is NOT something that he wants. And yes, @Robert Ellis , the owner can lend money to anyone or any entity that they want. Should actually be easier since lending to an LLC allows them to avoid Dodd/Frank nonsense and usury laws in many states, but I don't know about Ohio specifically.

I agree with both of the above.

I work with clients on owner financing frequently, and I owner finance homes myself. 

My point is that, when the seller has the mortgage drawn up, the attorney will inevitably say to the seller that they shouldn't lend to an entity, only to people. That can kill a deal. Doing a personal guarantee makes it more likely the owner will do the financing. I had this happen a few months ago with a seller. 

It's not that they can't lend to a LLC, it's that the attorney drawing the paperwork up will tell them not to.

@Robert Ellis . My dad and I have two properties we bought using land contracts with owner financing. The contracts are in the name of our LLC, RNB Holdings, INC, but we did have to personally guarantee them. The same went for the two properties we did commercial loans on. The loan and title is in our LLC, but we had to guarantee them. I really like our commercial lender we used in Xenia. So this is basically what @Tristam Griffith was saying. Haha

Provide the personal guarantee, this is not an issue under a corporate entity and they may lend to any entity without issues so long as it has the personal guarantee. 

Trying to be "creative" or is it trying to avoid responsibility ? 

This is not customary with small companies, what will be your defense if the seller claims you dealt in a predatory manner introducing that financing, then tried to skip out closing your LLC?

"Creative Financing" is not dreaming up terms that are more beneficial to one party than is customary, it can be predatory dealing/financing.

"Creative Financing" is the sophisticated use of assets to leverage capital needs, no assets(?) then don't be creative, there are plenty of financing arrangements that are already used for and by the no money, no credit, no job folks, stick to the tried, true, compliant and accepted methods. :)  

Originally posted by @Brian Person :

@Robert Ellis . My dad and I have two properties we bought using land contracts with owner financing. The contracts are in the name of our LLC, RNB Holdings, INC, but we did have to personally guarantee them. The same went for the two properties we did commercial loans on. The loan and title is in our LLC, but we had to guarantee them. I really like our commercial lender we used in Xenia. So this is basically what @Tristam Griffith was saying. Haha

 Of course they allowed you to borrow in whatever form or name you wanted with a Land Contract.  You don't have title until you pay it off anyway.

Hopefully the seller doesn't run into financial hardship, getting a lien attached to 'your' property.

Utilize a mortgage / note and deed of trust that puts the property in your or your entitie's name while you are paying on it!

@Steve Vaughan

I understand what you are saying. We initially wanted to do a deed of trust, but the seller preferred the land contract. We know the seller and bought four properties from him. We also know his financial status. Also, my dad is the Chief of Police in the city we are buying in. So we are not worried about that. Also, we will refinance the properties in the spring to pay off the land contract. Every deal is different and I don't know if we would do that with a seller we didn't know and trust. This gentleman has owned the rentals for over 30 years and is in the process of retiring. So he is selling all of his properties. I believe he owned 17 or so and all free and clear. So again, its about knowing the deal and the seller before agreeing to a contract like this. 

@Steve Vaughan . I also wanted to point out that in Ohio a land contract is recorded with the county auditor. 

Couple of thoughts here:

1. I would think that it would be easier to deal with an LLC than an individual in case of default of a land contract. In Illinois, if a buyer of a land contract defaults, I must file a forcible entry and detainer case against the buyer to regain possession of the property. My contract states that the property is being used for investment purposes only, but I'm thinking that a judge would look more harshly at an company being sued for violating the terms of the agreement in a commercial deal than an individual who may or may not have known what he was getting into. Also, I'm thinking service of process is easier against a company than an individual, because an attorney can be served as registered agent of a company where an individual likely cannot.

2.  I was told that realistically my only recourse in case of a land contract default was the property back.  You may get a judgment, but it is very difficult to collect judgments in Illinois and typically not worth the cost.  The case would be filed against the buyer 30 days after default anyway, so how much of a judgment would you get?

3.  Frank Dodd financing issues.  

Originally posted by @Robert Ellis :

Hi All, 

Has anyone ever tried an owner finance deal to a corporation instead of an individual? We have the goal to pick up 12 units next year in our business name and not the personal name and we will have the downpayment for about 8 of those units. We want to try our first creative deal in Columbus as well next year and I'm wondering about this specific part of it. Any advice would be much appreciated! 

Rob

Yes I do it all the time. I have purchased deals via owner financing in several different LLC's. As long as you are going to personally guarantee the note the sellers don't usually mind.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here