New to real estate. Should I create an LLC? How difficult is lending options?

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New to real estate. Should I create an LLC? How difficult is lending options?

Michael NguyenPro Member
Member since 2024 · 8 posts · 3 votes

My friend and I are starting our real estate journey together as partners. We know we want to create an llc but is it difficult to secure a loan? What are our options and what should we expect if we structure our llc prior to looking into lending options? Thank you in advance! This community is great! 

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Robin SimonBusiness Member
Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
1y
Quote from @Jonathan Greene:

This question is one that has been asked and answered like a billion times, but the search on here isn't the greatest.

The short version is - unless you have cash to buy or are getting a DSCR loan or buying a commercial property, you aren't starting an LLC to put this in. For residential mortgage, an LLC needs two years of its own tax returns or occasionally, a local credit union where you have an account will ok it.

The bigger question is about your partnership. You want to have long discussions about your goals, how to break a tie when you don't agree, and you should always have the exact same amount in the account.


Accurate information here - heres lots of links on the DSCR Loan option, which is generally the go-to and best loan type for investing if you are using LLC (DSCR Lenders are generally not only LLC friendly, but prefer it and in some states require it!)

✅12-Part DSCR Loan Series published here on BP
➡️https://bit.ly/3IUUIBZ

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  • Jonathan GreeneBusiness Member
    Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
    1y

    This question is one that has been asked and answered like a billion times, but the search on here isn't the greatest.

    The short version is - unless you have cash to buy or are getting a DSCR loan or buying a commercial property, you aren't starting an LLC to put this in. For residential mortgage, an LLC needs two years of its own tax returns or occasionally, a local credit union where you have an account will ok it.

    The bigger question is about your partnership. You want to have long discussions about your goals, how to break a tie when you don't agree, and you should always have the exact same amount in the account.

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  • Patrick Roberts
    Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes
    1y

    The LLC wont do anything special for lending. If you plan to use Conventional loans, the LLC is off the table. DSCR loans allow lending to LLC's, but the LLC members will likely need to personally guarantee the loan. At the end of the day, you'll still need good credit, income (rental income from the property will suffice for DSCR loans), and cash to close, including a downpayment (likely 20%+).

    If you're asking how to get a general purpose loan to the LLC, then that's not going to happen without several years of operating history and organized financials for a CRE lender to underwrite.

    Not trying to rain on your parade, but this is much more complicated than just forming an entity and getting a loan. I recommend you consult with a lender with expertise in investing, preferably someone local to you, to discuss the lending options best suited for your goals, strategy, and tactics. This will provide clarity regarding what matters and what does not, as well as what's realistically available to you. 

    4Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    1y
    Quote from @Michael Nguyen:

    My friend and I are starting our real estate journey together as partners. We know we want to create an llc but is it difficult to secure a loan? What are our options and what should we expect if we structure our llc prior to looking into lending options? Thank you in advance! This community is great! 


    The LLC will have zero impact on lending. The lender will look at you and your business partner. It does not matter whether you are starting a real estate business, restaurant, car wash, or amazon commerce business - the lender will first look at you and your partner and how much skin you have in the game, your experience and the risk of the loan not getting paid.

    So if you have good credit and cash, it makes starting any type of business a lot easier. 

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  • Robin SimonBusiness Member
    Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
    1y
    Quote from @Jonathan Greene:

    This question is one that has been asked and answered like a billion times, but the search on here isn't the greatest.

    The short version is - unless you have cash to buy or are getting a DSCR loan or buying a commercial property, you aren't starting an LLC to put this in. For residential mortgage, an LLC needs two years of its own tax returns or occasionally, a local credit union where you have an account will ok it.

    The bigger question is about your partnership. You want to have long discussions about your goals, how to break a tie when you don't agree, and you should always have the exact same amount in the account.


    Accurate information here - heres lots of links on the DSCR Loan option, which is generally the go-to and best loan type for investing if you are using LLC (DSCR Lenders are generally not only LLC friendly, but prefer it and in some states require it!)

    ✅12-Part DSCR Loan Series published here on BP
    ➡️https://bit.ly/3IUUIBZ

    [email protected]
    Harpoon Capital514 Reviews
    WebsiteView Page
    4Reply
  • Deborah Wodell
    Lender · NC · Member since 2024 · 344 posts · 115 votes
    1y

    That's great you're starting together! Setting up an LLC is a smart move. When it comes to securing a loan, lenders will look at your personal credit, experience, and the financials of the LLC. While there are plenty of lenders willing to work with new investors, remember that the deal must make sense. It should have a good spread to ensure you're not losing money in the long run. Make sure your LLC is set up properly, and consider hard money lenders for more flexible options.

    0Reply
  • Nick BelskyBusiness Member
    Residential and Commercial Broker · Member since 2021 · 1k+ posts · 704 votes
    1y

    @Michael Nguyen

    I'll focus on one key point between the two.  

    If you plan to finance with conventional lending, Fannie/Freddie do NOT lend to entities, so you will have to vest in your personal name(s) for each loan.  Fannie does allow vesting to be changed to an entity after 6 months of seasoning on title AND the original owner must have continuity in entity that is being added to vesting.  A minor hurdle for some, but a larger issue to some as well.

    With DSCR or private money lending, yes, you can still also vest in your individual names, but you will find many lenders will NOT allow it or will actually charge you higher rates to do so. Vesting with an entity is much more preferred in the private money world. In some states, say Florida, all business purpose loans must be vested under an entity by law.

    There are many other contrasts to these loan types but that is for another post.  Lol.

    Cheers!

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  • Tanarat Bunchom
    Lender · Dallas, TX · Member since 2024 · 50 posts · 24 votes
    1y

    @Michael Nguyen Starting with an LLC is a great move for asset protection and partnership clarity, but it can make securing loans a bit trickier, especially when you're just starting out. Most lenders will look at your personal credit and income even with an LLC structure, so expect to personally guarantee loans in the beginning. Conventional loans might still be an option, but DSCR loans or portfolio lenders could be a better fit for LLCs. Just be prepared for higher rates and possibly stricter terms. It's a good idea to connect with investor-friendly lenders early to explore your best options.

    0Reply
  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    1y

    Hi Michael, 

    As others have stated you do not need an LLC to qualify for a residential mortgage. It may be required on a Commercial, DSCR, or Hard Money loan but I would encourage you to speak to multiple lenders to find out which specific loan program you need for your goals and qualifications.

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  • Taz Zettergren
    Real Estate Agent · Memphis, TN · Member since 2019 · 365 posts · 264 votes
    1y

    @Michael Nguyen welcome to the forums! If you and your partner are in it for a long term buy and hold option I would recommend purchasing homes in your personal name then quitclaiming to an LLC. This way you're able to utilize conventional loans, each of you are allowed 10 of those. You can certainly buy the property in the name of the LLC but you'll have to use a DSCR product which will have an interest rate that's 1% higher than conventional.

    1Reply
  • Michael NguyenPro Member
    OP
    Member since 2024 · 8 posts · 3 votes
    1y
    Quote from @Tanarat Bunchom:

    @Michael Nguyen Starting with an LLC is a great move for asset protection and partnership clarity, but it can make securing loans a bit trickier, especially when you're just starting out. Most lenders will look at your personal credit and income even with an LLC structure, so expect to personally guarantee loans in the beginning. Conventional loans might still be an option, but DSCR loans or portfolio lenders could be a better fit for LLCs. Just be prepared for higher rates and possibly stricter terms. It's a good idea to connect with investor-friendly lenders early to explore your best options.


     Thank you! 

    0Reply
  • Michael NguyenPro Member
    OP
    Member since 2024 · 8 posts · 3 votes
    1y
    Quote from @Taz Zettergren:

    @Michael Nguyen welcome to the forums! If you and your partner are in it for a long term buy and hold option I would recommend purchasing homes in your personal name then quitclaiming to an LLC. This way you're able to utilize conventional loans, each of you are allowed 10 of those. You can certainly buy the property in the name of the LLC but you'll have to use a DSCR product which will have an interest rate that's 1% higher than conventional.


     Thank you!

    0Reply
  • Michael NguyenPro Member
    OP
    Member since 2024 · 8 posts · 3 votes
    1y

    Thank you ALL for your input. This community is really helpful and I am grateful to join and be part of this. Your guidance, tips and strategies are very much appreciated and needed for a new investor like myself. I will definitely pay it forward as my experience grows in this fun journey! 

    0Reply
  • Michael NguyenPro Member
    OP
    Member since 2024 · 8 posts · 3 votes
    1y

    I have another question about lending to llc. So my friend (business partner) and I are securing capital by selling our collectibles. As we sell through these items should we create a bank account with the llc to "season" the capital for when we are ready to reach out to a lender when we are ready to make our first investment? 

    0Reply
  • Roger Mace
    Lender · Knoxville, TN · Member since 2024 · 112 posts · 23 votes
    1y

    I see a lot of information about LLC's here. Most of my lenders do not loan to private individuals. They want a business entity

    0Reply
  • Patrick Roberts
    Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes
    1y
    Quote from @Michael Nguyen:

    I have another question about lending to llc. So my friend (business partner) and I are securing capital by selling our collectibles. As we sell through these items should we create a bank account with the llc to "season" the capital for when we are ready to reach out to a lender when we are ready to make our first investment? 


    Whatever cash is going to be used for the entity should ideally be in the company accounts for 60 days. This will vary by lender, but 60 days will cover seasoning for most. Also, many lenders are picky about the operating agreement and structure of the LLCs. If the LLC is used for something other than owning and operating rental real estate, you may have a problem. If they see that youre generating cash for operations via a non-RE business activity, it could be an issue. This is very much lender-specific and will vary.

    0Reply
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