Lending options for buying a flip under personal name vs LLC?

Question

I'm trying to get a better understanding of my lending options on buying a flip in my personal name vs under an LLC that I have full ownership of. I understand it can be harder with an LLC and I'll most likely have to personally guarentee it anyways.

I'm more so curious about the actual types of loan options I would have and what the difference in rate/terms would be for a "personal investment property" vs buying an investment property under an LLC. If I'm personally guarenteeing it I don't see how it would be different either way but I know everyone says you get better terms buying under your personal name.

Erik Estrada · Answer

Hey Brandon,

There is not much of a difference in rate and terms between closing in a natural name or LLC on a DSCR loan.. You will see the rate and term difference comparing a conventional mortgage to a DSCR loan. The rates may be similar, however keep in mind that DSCR Loans carry prepayment penalties.

Stacy Raskin · Answer

@Brandon Stiles, yes, DSCR is only for rentals. Livable condition because the appraiser has to mark "as is" on the appraisal and not "subject to" repairs or the DSCR lender will not fund even if all other conditions on the loan have been met. That's why some investors get fix and flip loans to initially fund their purchase since they can't get a DSCR loan because of that.

The difference between DSCR and conventional is that DSCR uses the actual or market rent schedule against the expenses to underwrite the loan. You could do a conventional investment property loan if you meet the guidelines such as having the income and the debt to income / DTI ratios to do so. There are both DSCR and conventional loans that are fixed 30 year terms.

Brandon Stiles · Answer

@Stacy Raskin I thought DSCR were only used for rentals? If I buy something thats "in livable condition" under my personal name could I not just get a conventional 30 year loan?

Brandon Stiles · Answer

@Eliott Elias I thought DSCR loans were only used for rental properties? Also I'm planning on using a HELOC for DP and rehab so I was hoping to just get a mortgage rather than a specialized loan based on ARV. I'm hoping to find a house thats still "in livable condition" but needs a cosmetic rehab, not a complete gut job.

Devin Peterson · Answer

Hey Brandon, You’ll almost always have to personally guarantee it. Most fix and flip / hard money loans are business entity loans where they must close in the LLC name but they are still guaranteed by and individual. There’s no difference in rate or terms, the difference in terms and rate comes from the experience you build as an investor over time. The more deals you do the more you grow your experience, and the more bankable you become. Happy to connect for more questions!

Stacy Raskin · Answer

There are lenders that will lend to you in your personal name for a DSCR loan or a fix and flip loan. It depends on your research for cost, tax benefits etc as to what the right option is for you. You are correct that lenders will have you personally guarantee the loan. There are sometimes more costs associated with putting the loan in an LLC due to some lenders charging an LLC review fee to make sure your paperwork is done correctly. There is more paperwork reviewed in underwriting when the loan will be done for the LLC so make sure it's done correctly.

Eliott Elias · Answer

Your lending options don’t only change with entities. They shrink with the type of assets you are buying. With single-family you can pretty much only get DSCR loans and commercial financing with balloons. There are some DSCR lenders that require you to have an LLC and pretty much all Hard Money Lenders require the property to be closed in an entity.

Lending options for buying a flip under personal name vs LLC?

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