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HMLs without LLCs in Alabama
#4 House Hacking Contributor
- Real Estate Agent
- Los Angeles, CA
Hello All,
Do all hard money lenders require the property to be in an LLC? I'm looking to buy a property quick and haven't had a chance to set one up. It would only be for six months anyways.
Thanks!
Quote from @Rick Albert:
Hello All,
Do all hard money lenders require the property to be in an LLC? I'm looking to buy a property quick and haven't had a chance to set one up. It would only be for six months anyways.
Thanks!
Hi Rick,
No, not all hard money lenders will require that the property be under an LLC, though some do. You are usually able to close in your individual name if needed. It would ultimately just depend on the lender you use.
Hi Rick, some will and some will not. It's usually a good idea to have one in case the lender you want to use requires it though.
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#4 House Hacking Contributor
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#4 House Hacking Contributor
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Quote from @Tristan Pearrow:
Hi Rick, some will and some will not. It's usually a good idea to have one in case the lender you want to use requires it though.
I agree but I'm just thinking of time and additional upfront costs. I would probably set it up by the end of the year anyways.
Not all hard money lenders require an LLC, what type of property are you buying and are you under contract?
#4 House Hacking Contributor
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#4 House Hacking Contributor
- Real Estate Agent
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looking at 2-4 units. Not under contract yet but getting close. @Patrick Prunty
@Rick Albert generally most hard money lenders what an LLC. The reason is they don't want the risk of the loan being considered a consumer loan. That means there are many additional regulatory requirements they need to meet. I have not met a hard money lender that did not want the loan to be in an LLC but there could be some. It may be a state by state thing.
The problem with buying without an LLC and then putting the property into an LLC is; technically you are selling the property to the LLC. It could be considered a Contribution to the LLC but the legal effect is the same. The ownership of the LLC is changing. This is a legal transfer of title so it may mean new property insurance, transfer taxes, renewing your title insurance, and potentially the lender could call the loan due. The last point is not likely with a hard money lender but it is possible.
I can't imagine setting up the LLC is that time consuming (just did one it took less than 24 hours without paying an expediting fee). Consumer loans are subject to a lot more regulation compared to a loan to an entity, so I would say the vast majority do limiting who you can work with (this may cost you more than a few hundred dollars).
I always open LLCs in Wyoming. Its quick, easy, cheap and very private. It's about $180 to set up and like $50 a to renew each year. Doesn't matter that you don't own a property there the go around is then to file FOREIGN registration in the state that you own the property in to link and comply with the state you own the property in, you can do this after the fact.
Message me if you have more questions about it --- (I AM NOT a CPA, my advise is experience based)
@Rick Albert you can close in your name with many private lenders. You should not need to form an LLC but it must be an investment property.