Financing a House With Family Members (in an LLC)

[Seth Sutherland]

I'm planning to buy a rental property with a family member this summer. She has the cash but no credit, and I have the credit but no cash. Of course we want to end with the property in an LLC, but I'm unsure of how to get from A to B. I've read some disheartening blog posts about buying a property as an individual and then transferring it to an LLC, mainly due to clauses viewing the transfer as a sale and requiring a full payment of the mortgage.

I also saw that some mortgage companies won't loan to LLCs (if the LLC buys the house instead of me as an individual), and of course the loan will have a higher interest rate for an LLC.

However, if I buy the house as an individual before moving the property into an LLC, then my family member would have to "gift" me the down payment and we'd be hit with gift taxes. Besides, it would work for me but I realize that most investors would never "gift" a down payment before financing a property as they lose all legal rights to the money.

So my question is, what is the process to mortgage a property with an investor's money? How do we go from somebody with cash (the passive investor) and somebody with credit (who will be running the rental) to two people with 50/50 shares in an LLC investment property?

[Andrew Bang]

Form an LLC with your family member. Buy a property with a hard money loan, find the right property off market at 75% ARV or better, rehab it, rent it out. Then refinance with a lender who has a non seasoning DSCR loan. It will be a little higher interest rate because of the DSCR loan and being in an LLC. But will work great for your situation. Will be able to do a rate and term loan right away, maybe have the hard money loan for a month or two. If you wait 6 months can get a cash out refinance DSCR loan (I've seen it as short as 4 months for some lenders).