FHA to LLC with a partner??

10 Replies

I've come across a pretty amazing deal, and to make it better, I would obviously like to get 30yr Fixed terms.  I already have my four, but my soon to be business partner only has one. 

Is there a way to have him buy in his own name, then convert into our LLC down the road? If so, what are some ways that can be done?

I was thinking if he buys it in his name, then we move ownership into a trust, which is then owned by our LLC... Am I at least close?

Originally posted by @Kyle N. :

I've come across a pretty amazing deal, and to make it better, I would obviously like to get 30yr Fixed terms.  I already have my four, but my soon to be business partner only has one. 

Is there a way to have him buy in his own name, then convert into our LLC down the road? If so, what are some ways that can be done?

I was thinking if he buys it in his name, then we move ownership into a trust, which is then owned by our LLC... Am I at least close?

 The comments here are applicable to you...

http://www.biggerpockets.com/forums/48/topics/2071...

Also, FHA loans are for owner-occupied properties, so I would strongly caution against buying a property using an FHA loan if the borrower does not intend to occupy the home for at least one year.

@Stephen Chittenden

I Misspoke a little bit, it wont be an FHA loan, but it will be a loan that is locked for 30 yrs under investment terms. I'm definitely not trying t do anything illegal, but don't want to come across the due on sale clause.

-Kyle

@Kyle N. I'll be interested in the feedback you receive. You could have your partner purchase it, then do a quit-claim deed into the trust or LLC. Technically, your loan could be called, but I'm told this is unlikely by people with a lot more experience.

Also, what's the structure of the partnership since you're essentially trusting this partner to transfer ownership after purchase? Is this a buy and hold?

@John Casmon

 Thanks for the info.  Yes, this is a buy and hold deal and my partner is my brother in law, and it's his first deal, so the trust level is very high.  He's been talking about doing something for years, but now that I have actually done a few deals, he wants to bring me along as somewhat of a mentor.

I'm trying to do something similar with a family member but actually through FHA. After the 1st year where you have to live in the property what would be the steps to transfer to an LLC, and finance another property though FHA?

Filip,

That deal never did go through with my brother in law, he had too much on his plate and didn't want in. However, in the meantime, I have converted 3 of my properties that are in a 30 yr fixed mortgage over to my LLC by having my lawyer draw up a quit claim deed. Yes, it could trigger the due on sale clause, but so far I haven't heard a word...its been 2 months now.

@Filip Gjorgioski You could theoretically do that with the first one, although FHA loans are probably more likely to be stricter with the due on sale clause. However once you do that you can't repeat it because you are only allowed one FHA loan at a time.

When you transfer it to an LLC the loan is still in place and under FHA so they will not allow you to get another FHA loan. You would have to refinance it into conventional in order to do that.

@Kyle N. @Nnabuenyi Anigbogu

Thank you both for your input. Looks like refinancing the FHA loan to conventional would be the best route. Kyle when you did the quit claim deed was it financed through a conventional loan?

Also I see you're both from IL as well. I'm looking around at mostly 3 flats in Chicago right now. Any neighborhoods/burbs you guys would recommend looking into? I have MLS access so I'm looking daily.

Originally posted by @Filip Gjorgioski :

@Kyle N. @Nnabuenyi Anigbogu

Thank you both for your input. Looks like refinancing the FHA loan to conventional would be the best route. Kyle when you did the quit claim deed was it financed through a conventional loan?

Also I see you're both from IL as well. I'm looking around at mostly 3 flats in Chicago right now. Any neighborhoods/burbs you guys would recommend looking into? I have MLS access so I'm looking daily.

Filip,

yes, when I did the quitclaim, it was/is a conventional loan on 30yr fixed terms. Conventional loans will not loan to an LLC, so I took title in my name, then deeded it to my LLC.

I'm investing in the Rockford area, so I won't be any help for Chicago or surrounding burbs as I have no idea what's what in there!  Good luck and I hope everything works out well for you!

@Kyle N. Fannie Mae allows up to 10 conventional mortgages.  Fannie Mae upped the mortgage limit from 4 to 10 several years back.

If you go the LLC route, it would need to be a commercial loan, which will have a higher rate and shorter term.

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