My business partner and I are on the hunt for our first multi-family investment property. Our plan is to focus on Brandon Turner's Plan 1: How to Make $1,000,000 Through Rental Properties. We would like to go in on our first deal together and wrap our investment into an LLC, but understand most banks will not finance residential under an LLC and we would have to take a personal loan for this. Does anyone have any experience buying rental properties with a partner have suggestions on how to finance rental properties and best protect the partner relationship? Thanks!
@Jacob Riley, what Christen outlined is a common method. There are some risks, although I would rate them at very low. Any agency debt (Fannie or Freddie) will have an acceleration clause that stipulates any transfer of ownership will make the full mortgage due immediately. Fannie outlines on their website, that you can do what Christen outlines after one year of ownership, I believe. I also have yet to hear of anyone that ever got caught up in this issue, so again low risk option, but still a risk.
The other route is to go with local lenders and stay on their commercial side of the business. Eventually, you will end up here anyways. These loans will be in the name of the LLC, but do typically have higher rates and balloon payments (mine are 70% LTV, 5 yr term on 20 yr amortization). But they also don't show up on my credit report. I signed a personal guarantee, making them a contingent liability but not effecting my ability to get personal financing when buying a house or any other loan I might need.
Good morning. I have 3 small multi-families with a partner. We alternate who takes the conventional mortgage as individuals are allowed 10 each. We then quit clam into an LLC which we both own. You'll need an operating agreement with your partner - these are pretty boiler plate. Do you have a lawyer? In ours we spell out who does what, expectations, etc... and then we have monthly meetings for accountability, accounting and updates.
Thank you Christen and Jeffrey! This is EXACTLY what we want to do. I currently do not have a lawyer. I live in Dover, DE and will be on the hunt for one.
What do you mean by quit claim? Can you please elaborate?
Also, even though you are allowed 10 loans, does it not affect the interest rate and down payment requirement when you need more loan in future? My understanding is, if you have some loan on your name that means you’ll have to put more down payment for any future loans
@Jacob Riley, what Christen outlined is a common method. There are some risks, although I would rate them at very low. Any agency debt (Fannie or Freddie) will have an acceleration clause that stipulates any transfer of ownership will make the full mortgage due immediately. Fannie outlines on their website, that you can do what Christen outlines after one year of ownership, I believe. I also have yet to hear of anyone that ever got caught up in this issue, so again low risk option, but still a risk.
The other route is to go with local lenders and stay on their commercial side of the business. Eventually, you will end up here anyways. These loans will be in the name of the LLC, but do typically have higher rates and balloon payments (mine are 70% LTV, 5 yr term on 20 yr amortization). But they also don't show up on my credit report. I signed a personal guarantee, making them a contingent liability but not effecting my ability to get personal financing when buying a house or any other loan I might need.
What do you mean by quit claim? Can you please elaborate?
Also, even though you are allowed 10 loans, does it not affect the interest rate and down payment requirement when you need more loan in future? My understanding is, if you have some loan on your name that means you’ll have to put more down payment for any future loans
Quit claim is the process when you move the building from your personal name into your LLC, and vice versa. You will need to put for 25% on investment properties unless you'll be living in them.