Starting and LLC and Credit to Purchase Real Estate

6 Replies

Hi Everyone,

I am in the process of looking for my first deal. I am considering starting an LLC with my partner but I wasn't sure how credit to finance these deals works. Will I be able to finance deals without any sort of credit history in the business? Will they consider the credit history of my partner and myself? Please let me know your thoughts and experiences.

Thanks,

Hi @Clay Gregord , initially your and your partner's personally credit-worthiness and ability to guarantee the loan will be the primary factor in the bank's determination of "go/no-go".  That was stellar news for me and I hope it is for you, too!  You should be able to work with local banks to obtain excellent financing for your deals and build your business' credit-worthiness through the process.

Hey @Clay Gregord the bank will use your, and your partner's, credit to approve the loan. Also, my experience is that you will have to sign a personal guaranty for the loans so the LLC won't shield you from personal liability for the mortgage. However, the LLC will protect you from other potential liabilities.

There is an ongoing debate on the utility of LLCs but I would suggest that you get a business umbrella policy to cover any claims that would not be handled by your property insurance.  I think my policy is $1M for $325/year.

Not at all (I think . . .so an attorney would be a wise person to confirm this with). It is simply allowing the banks to collateralize their loans off of you in the event that the LLC doesn't service the debt. You could functionally have ANYONE guarantee your loan and it wouldn't make them complicit in the operations unless otherwise specified in the Operating Agreement.

Hey @Clay Gregord the bank will use your, and your partner's, credit to approve the loan. Also, my experience is that you will have to sign a personal guaranty for the loans so the LLC won't shield you from personal liability for the mortgage. However, the LLC will protect you from other potential liabilities.

There is an ongoing debate on the utility of LLCs but I would suggest that you get a business umbrella policy to cover any claims that would not be handled by your property insurance.  I think my policy is $1M for $325/year.

They bank will likely require personal recourse on the loan, making your credit score come into play. 

Additionally, due to an LLC structure, it might be more difficult to find a lender and the interest rate will absolutely be higher.

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