Couple getting into real estate and how to structure loans

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Couple getting into real estate and how to structure loans

Dane Silchenstedt
Flipper/Rehabber · Corpus Christi, TX · Member since 2020 · 56 posts · 8 votes

My wife and I are starting to purchase properties. We bought our personal residence with both of us on the loan. Now we are looking at buying our first rental/fix and I am wondering if we should both be on the loan or if it makes sense to only put one on the loan if finances allow? Since we are buying close to home I think our future loans will be labeled as investment properties. Does it matter at all if we are both on the loan or should it be just one? We want to expand fairly quickly over the next 5 years with BRRR and maybe some fix and flips. We both have great credit and decent 1099/W2 income.

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Ashley Cross
Lender · Columbus, OH · Member since 2020 · 202 posts · 214 votes
4y

You'll receive better financing terms with conventional loans that lend to individuals only. You can transfer the property to the LLC after you close to limit your liability. You are allowed up to 10 loans under Fannie/Freddie guidelines so its in your best interest to only have one of you on the loan. If the other spouse is on the deed they are only responsible for property taxes and insurance when it comes to your DTI.

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  • Jason Taken
    Lender · Chicago, IL · Member since 2021 · 424 posts · 145 votes
    4y

    A lot of investors throw their properties into LLCs as a way to shield themselves from financial liability and also open the door to non-traditional financing. 

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  • Nick BelskyBusiness Member
    Residential and Commercial Broker · Member since 2021 · 1k+ posts · 704 votes
    4y

    @Dane Silchenstedt

    Most true fix and flip loans will be done by commercial lenders and will require you to be in an LLC. If you consider an FHA 203K rehab loan, the FHA guidelines will require both you and your wife to be on the loan application.

    If you decide to purchase as an individual with a conventional loan, then take on the flipping costs out of pocket, then sell for profit, you would be able to not be in an LLC and do it with only one of you. If you decide to use a non-QM loan (1099/bank statement/DSCR) loan, you can also do those with only one of you. The DSCR won't even look at your income anyway...

    Lots of choices... 

    Cheers!

    [email protected]
    Belsky Mortgage, LLC527 Reviews
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  • Dane Silchenstedt
    OP
    Flipper/Rehabber · Corpus Christi, TX · Member since 2020 · 56 posts · 8 votes
    4y

    We have an LLC set up for properties but from reading books/BP site and listening to BP podcast, we were under the impression to purchase as individual outside of LLC and transfer into LLC once refi is done. We have a hard money lender in place now. We are starting to work with a title company for seller agreements and contracts. Any thoughts?

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  • Ashley Cross
    Lender · Columbus, OH · Member since 2020 · 202 posts · 214 votes
    4y

    You'll receive better financing terms with conventional loans that lend to individuals only. You can transfer the property to the LLC after you close to limit your liability. You are allowed up to 10 loans under Fannie/Freddie guidelines so its in your best interest to only have one of you on the loan. If the other spouse is on the deed they are only responsible for property taxes and insurance when it comes to your DTI.

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  • Ashley Cross
    Lender · Columbus, OH · Member since 2020 · 202 posts · 214 votes
    4y

    Just to add, there is a clause in the mortgage that states if the ownership changes for the property the lender can call the note due but I've never seen this happen and this has not been the case with my properties. Do your research.

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  • Jim KalishPro Member
    Real Estate Investor · Matthews, NC · Member since 2017 · 219 posts · 173 votes
    4y

    I hate to use this expression but it all depends. On the fix and flips I don't think it matters since you won't have the note very long. And your hard money lender is more concerned about the ARV. But for the ones you plan to BRRR it can make a difference. Freddie and Fannie have a limit of 10 mortgages. So you have to keep that in mind. If you think you will need more than 10 notes in a personal name you will want to keep them separate. But that only works if each of you individually can qualify. If only 1 person is on the note then only that person's income can be used to qualify.

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  • Dane Silchenstedt
    OP
    Flipper/Rehabber · Corpus Christi, TX · Member since 2020 · 56 posts · 8 votes
    4y

    @Ashley Cross Thank you very much for your reply. Very helpful.

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  • Dane Silchenstedt
    OP
    Flipper/Rehabber · Corpus Christi, TX · Member since 2020 · 56 posts · 8 votes
    4y

    @Jim Kalish Thank you this helps clear up BRRR vs flip. When I put you and Ashley's response together it makes a very clear picture.

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  • Casey Caton
    Investor · Member since 2017 · 69 posts · 65 votes
    4y

    You can make it work in lots of different ways. While the ownership and deed is in both of our names, the five residential loans that we have are all in my name. Whenever we reach a point when I can no longer get a residential loan, we will pivot and let my wife take over from there. LLCs offer great protection as long as you treat them as their own business and dont mix them with personal assets. My lenders would not let me transfer my properties to my LLCs, so I just got a large umbrella insurance policy. There's usually more than one right answer when it comes to many things in real estate.

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