Low fixed-rate Conventional Mortgage to LLC
Quick background for those who are new to REI: For liability purposes, it is generally preferred to hold real estate in an LLC (so if you're sued, creditors can't touch your personal assets, e.g., savings acct, primary home, 401k, IRA, etc)
But, lending terms to LLCs are significantly worse than "conventional mortgages" (i.e., Fannie Mae, Freddie Mac) to individuals. For example, you can get a conventional mortgage right now for like 3.5% APR fixed for 30 yrs. That's amazing! But if you hold your property in an LLC (for protection), your lending terms will typically be a 5-yr ARM (or 5-yr balloon) at 6.5% APR. To summarize, if you buy in your own name, you can lock in a mortgage at an amazing 3.5% FIXED for 30 freakin years! If you buy through an LLC, you're already starting at a 6.5% rate & it's just gonna get higher & higher over time as rates rise. You might be paying 10-15% APR on your LLC mortgages in only 5-10 years!
One often-discussed solution is to buy a property personally & then transfer it into an LLC. This used to work but there's a risk that the bank will "accelerate" (or "call") your mortgage as this triggers your due on sale clause & gives banks (or whomever they've subsequently sold your mortgage to) the right to essentially cancel your mortgage at the best possible time for them (i.e., the worst possible time for you). This is a huge risk bc as rates rise, banks will have more incentive to call off lower-rate fixed mortgages.
The best solution I've heard of is the "land trust" method. Essentially (without bogging this discussion down with too many details), you create a land trust with yourself as the beneficiary & banks will lend a conventional mortgage to the land trust since you are personally the beneficiary. Then after closing, you quietly transfer your interest in the land trust over to an LLC you've created. Since this isn't publicly recorded anywhere, the bank will never know you've done this & can't cancel your mortgage.
BUT, it sounds like in the last few years, most banks are now refusing to lend conventional mortgages (i.e., 3.5% fixed rate 30-yr Fannie Mae mortgages) to land trusts. Which essentially brings us back to square 1: either buy a property personally & take on liability risk, or buy through an LLC & take on interest rate risk in the terms of a significantly worse adjustable-rate APR.
Is anyone aware of lenders who are still issuing long-term low fixed-rate mortgages (ie, 3.5% fixed rate for 30 yrs) to land trusts? Or is there any alternate solution?
(Note: I realize US legal terminology varies by state. Depending on the state, I have also heard a land trust referred to as a living trust, grantor trust, and Inter Vivos revocable trust)