I'm running into a road block trying to purchase a rental property and taking ownership with a new LLC, while guaranteeing the loan with my W2 income.
This is not something that I foresaw having an issue with since we have zero debt now, as well as high credit scores and solid jobs/incomes.
One lender I spoke to straight up said they won't do that and I would have to quitclaim (which I'm weary of) and the other would only do it as a 5 year balloon..
I understand that some people don't think you should start out in an LLC but I'm younger and this is going to scale massively over 20-30 years before retirement, so I just want my corporate veil nailed shut to protect my other revenue streams.
So anyways, am I not asking the right questions or giving them too much information and spooking them? Any guidance would be appreciated before I start cold-calling every lender I can get my hands on.
@Will Guy Generalizing a bit and trying to put this very plainly, if you are seeking a conforming, residential mortgage for this transaction, it is probably not going to happen with you closing it in LLC. These loans are meant to be done under your name, with you guaranteeing the loan for a reason. The introduction of an LLC as owner changes that dynamic. That I know of, I don't believe you are going to find a residential mortgage for this transaction unless you close it in your name and quit claim after.
When closing in LLC - you are essentially telling the bank that this loan is for a business and you are operating as a business. The options that are being offered to you under the LLC closing scenario are business/commercial loan options. Short term balloons which need to be re-analyzed and re-done often to make sure your business is performing.
Here was my conversation regarding the same matter in another thread. It apply's here as well.
The reason you cant get a conventional loan in the name of your LLC is that Fannie Mae, Freddie Mac, USDA, FHA, VA all require you to hold the property in your personal name and guarantee the loan. For residential mortgages, that's 95% of what your going to find in the market place. If you get outside those loans, then they are going to specialty or portfolio loans, meaning the lender keeps the loan and creates their own guidelines.
I have talked about this very subject many, many times. As an investor it is natural that you would want to buy and hold more than 10 properties. Fannie Mae has a 10 financed property rule that says once you have 10 financed properties, you are no longer eligible to get anymore properties financed via Fannie Mae.
Most people want to hold properties in an LLC for reasons of separation and privacy and risk mitigation. However, they quickly find out that getting financing with favorable terms like you would if you held them personally, doesn't really exist. So they look around and around and around and finally either agree to pay the higher rates and deal with the shorter terms or they hold them personally to get the best financing available?
My suggestion is that you do a combo. of both, however to hold them in an LLC is not part of my recommendation.
To get the best financing available, you need to hold the properties in your personal name. My recommendation would also be to get the highest liability coverage available on your landlord policy and then to follow that up with an appropriately sized umbrella policy considering all your assets, future wages and growth of both. The beauty of the liability policy is that is will also pay all defense costs, which can get very costly, so best to put that expense on the insurance company.
Once you have reached or just before reaching the 10 financed property rule, I would set up a SUB S corp and prepare to transfer some of the properties that you have had the mortgage on the longest, or the ones with the smallest balances to the SUB S. Then go get commercial or portfolio financing on these from either a local community bank, or credit union or a specialized Non-QM lender that loan to the entity on a longer term, but with higher rates? Yes this is the cost of doing business, and you should factor your business such that your taking these additional costs into account. But that's the business you chose, so until different loan programs come out, that's as good as it gets.
Now, because you have transferred 1 or more properties to the SUB S and even if you were required to sign on the loan as a guarantor, they wont count in Fannie Ma's 10 financed property rule, because they are commercial loans and they are in the name of the entity. Because of this, you have just opened up 1 or more slots available for additional Fannie Mae financing. So plan to use the Fannie Mae loans to buy and hold your properties as long as you can, and age the appropriate one out to the SUB S as you go.
Rinse, repeat to as many properties as you may ever want to finance?
If you need a referral to a Non-QM lender that can give you financing on longer terms, to your entity, PM and I will get you a list.
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