Financing a Multi-Family Deal with a Business Partner

[Jacob Riley]

Happy Saturday!

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!

[Evan Polaski]

@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.