Conventional vs Commercial

3 Replies

I’d like to buy my rentals with my LLC, but I told I can only use a commercial loan in that case. I was preapproved but I’m not sure how good the terms are and what to negotiate. Does it makes sense to buy in the LLC and not go for conventional loans? The bank said if it bought in my name and then transferred, I’d owe a significant tax. I’m trying to figure out my best loan option and if these terms are good and should be negotiated. Thanks for the advice! Term: 20 year Interest: 5.5% Re-pricing every 5 years at current treasury rate plus 2.7%

You will always get the best rate and term with conventional loans.

You are correct that you cannot get a conventional loan under the LLC though.

You'd be better off with regular Fannie/Freddie loans and an umbrella policy.

The only reason to get a commercial loan would be if you are not bankable.

@Joshua Boyce I started with conventional loans. You typically get better interest and you are able to get 30 year fixed. I would only expect interest go up so locking good interest for 30 years would be nice.

They are many reason to consider for this, but the few that comes to my mind ares:

- for commercial loans the property can be in bad shape in which would not qualify for conventional.

- there is typically no limit on the number of loans or the amount of money borrowed for commercial loans

- conventional loans can only by issued in your name, not LLC so there is the liability issues

- commercial loans have higher interest rate then conventional loans (typically i see about .3-.5)

- commercial loans are typically 5 years with 20 year amortization so much higher monthly cost

The bottom line, if i was doing my first couple of deals for buy and hold, i would go conventional in my name and then just transfer the title into LLC (typically as long as you pay the loans the bank don't go and check and don't care where the payment comes from - not telling you to do this but i have seen this is a lot). If you have more then 5 properties, then you have no other choice then going commercial. But why not to take advantage of better loan options when you can..

@Joshua Boyce Here are your options.

1) Finance the property in your own name with a Fannie Mae loan and then transfer the property to your LLC. This will not trigger the due on sale clause now as Fannie Mae changed that rule in November of last year and now allows this so long as you are the majority owner of the LLC.

2) Do a portfolio loan in the name of the LLC with you signing a personal guarantee. These can be 30 fixed rates and because of such, you wont need to refinance or pay additional fees every 5 years and be subject to the banks whims as to if the still want to finance the property.

3) Commercial loan with terms like you described or other terms available as well?

See the Fannie Mae rule down below: