Finance a property for personal use that my LLC owns

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Finance a property for personal use that my LLC owns

Pat C.
Investor · Jupiter, FL · Member since 2015 · 54 posts · 5 votes

Hello fellow BP members!

I'm currently trying to figure out the best way to finance a SFR. Here is the scenerio....

an LLC that I am a member of purchased a single family home with the initial purpose of a fix and flip. The LLC paid cash. Since the acquisition, my wife and I really like the house for our personal residence. The property is still in the renovation stage with about 3 months to go before complete.

The other 2 members of the LLC are ok with me purchasing the property from the LLC.

Question: How can I  most effectively purchase this property using conventional lending? I would like to finance the purchase price and all renovation costs associated.  Can I find a lender willing to get creative at closing and use a K-1 distribution from the sale and use the K-1 distribution as my down payment? 

Basically, I'm trying to finance all the costs that went into the property (purchase price and reno cost) and reduce/eliminate down payment by using K1 distribution from the proceeds of the sale that are due to the LLC. I need to find a creative lender who can help me navigate through these complexities.

Notes: 

This house will appraise for lending purposes

I have excellent personal credit

Thanks for any insight!

-Patrick 

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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    10y

    @Upen Patel might be able to give you an idea on this issue.

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  • Pat C.
    OP
    Investor · Jupiter, FL · Member since 2015 · 54 posts · 5 votes
    10y

    Thanks @Russell Brazil. I hope Upen Patel has some insight....

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  • Darrell Shepherd
    Rehabber · Smyrna, GA · Member since 2013 · 864 posts · 510 votes
    10y

    You aren't going to be able to use the proceeds from the sale to the LLC as the down payment. You, as an individual are purchasing the house from the LLC. It needs to stay that way, so the LLC would need to get the check and then do a disbursement to the members, which would take a day or two to cycle.

    I wouldn't think it'd take much to get someone to loan the LLC whatever the down payment is with a lien on the house that gets paid at closing, though. You could then have the LLC either loan it to you or have it pay you a buyout for your interest prior to closing or do a management fee if the entity owns other stuff.

    All kinds of ways to skin this cat, just gotta check with the lender on what their rules are and get a little creative with things.

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  • Pat C.
    OP
    Investor · Jupiter, FL · Member since 2015 · 54 posts · 5 votes
    10y

    Thanks @Darrell Shepherd. Still trying to wrap my head around how I can make this work. Thanks for the input!

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  • Upen PatelPro Member
    Lender · Nationwide Lender · Member since 2015 · 1k+ posts · 814 votes
    10y

    @Russell Brazil Thanks for the mention.

    @Pat C. What you are looking to do are two things.

    1) Purchase a primary residence from an LLC that you are a member. As long as this is disclosed, I don't see an issue with the transaction and getting financing. This would be like any other purchase.

    2) You want to use your portion of the LLC profits towards the purchase. I am not an accountant, but I believe a K-1 issued at end of the year. So you can't use that avenue. You might be able to do "seller credit" to use some or all of your profits to pay for closing cost. But I suspect this will create an accounting and tax disclosure issue. Likely not an option either.

    Best I can see, you will have to put a down payment to do the purchase. The only other option would be to use hard money/private money. They might lend you 100% of the purchase price if the property will appraise high. Though that money comes at a high interest rate and point.

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  • Pat C.
    OP
    Investor · Jupiter, FL · Member since 2015 · 54 posts · 5 votes
    10y

    Thanks @Upen Patel for the response. The best hard money I can find is too expensive at 12% interest with 3 points up front. That is not an option. 

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