New LLC financing (new investor)

[James Brants]

Hello all!

I just started my LLC and are looking for advice on financing. How difficult is it to obtain the Capital needed for a single family under my LLC? how much of a down payment? Can you get pre approved?

I know there are better ways on what to start with, I’m just trying to start simple and build my confidence/experience.

[Patrick Drury]

@James Brants
It's not very hard, but it will just cost more and your rate will be more than putting the property in your personal name. You will want to look into DSCR loans which are great for closing in an LLC. Although in today's climate with where rates are at, I would say just buy it in your personal name.

[Jack Mawer]

With a DSCR loan, most lenders are giving up to 75% LTV at the moment. You should be able to get pre-approved pretty quickly, considering most of these loans are non-qm (strictly focused on the property cash flow rather than W-2s, 1099s, etc.). As long as you have a decent FICO score you should be good to go. Do you already have a property in mind?

[Ray Hage]

I agree with Patrick that it's not hard and will cost more for a loan and higher interest rate if it is in a LLC. If you plan on living in the house longer-term, you have a homestead exemption in TX so you can lower your property taxes a bit as well as having the lower interest rate on the loan. It would probably be best to buy under you personal name even if you have plans to house hack or have room mates. Of course, you'll want to have liability insurance in case something bad were to happen.

If later on down the line, you plan to buy a new house (duplex, triplex, etc) to live in, you could transfer the first house into a LLC and homestead the new property.

[James Brants]

Thank you guys for the advice. I really appreciate. I currently have a mortgage in my name that my family lives in, so I just wanted to keep it all separated to protect them if anything was to happen

[Brandon Beardt]

Quote from @James Brants:

Hello all!

I just started my LLC and are looking for advice on financing. How difficult is it to obtain the Capital needed for a single family under my LLC? how much of a down payment? Can you get pre approved?

I know there are better ways on what to start with, I’m just trying to start simple and build my confidence/experience.

 Hi James,

Congrats on starting your LLC! To answer your questions - it's not too difficult to obtain properties under your LLC, especially with alternative financing. I will say, however, that if you're planning on purchasing properties out of the state of where your LLC is registered in, you may have to file for a certificate of foreign qualification in order to do business in that state. Many business purpose lenders require this and some actually miss it when going through the underwriting process. But if they do catch it, the legal team will require it, & depending on how busy that particular state's secretary of state office is, it can take a while to get one. Just a heads up as this has come up in the past. In regards to down payment, 25% is typical. Some lenders will allow you to go 20% down, but you'll have to meet a certain FICO threshold and it'll also increase the rate. Regarding pre-approval, yes, you can get pre-approved but it'll also depend on which loan product you're going with. Hope this helps you out. Wishing you the best of luck on your journey!

[James Brants]

Thank all of you for helping me. It’s great to know that they’re are people willing to help!!

[Christopher Owens]

@James Brants

Same here!

I too have several LLC's in my domicile state of Pennsylvania; Philadelphia.

currently looking to acquire a real estate property and convert its current zoning from residential to Triplex and rent out rooms to students and working professionals for cash flow….

Looking to have the property be the main element assessed for the acquisition rather than myself…

[JJ Lunsford]

@James Brants it's definitely possible to get loans to an LLC! I'll connect and happy to answer any questions you have about it... I'd say 50% of investors at least work via an LLC.

[David M.]

@James Brants

I understand why you want a LLC, but just go over as a good primer: https://www.biggerpockets.com/...

As mentioned, the big issue is that legal entities, such as LLC's, are not eligible for conforming residential loans, e.g. conventional, VA (probably the biggest let down for you), FHA, etc. So, that pushes you out to commercial/"non-residential" loans. Its an entirely different ball game...

Make sure you learn how to properly conduct business with the LLC and protect the corporate veil, otherwise there was no point in using it. The top two is co-mingling funds and using it as your alter-ego. You have to act / keep in mind as if the LLC was another entity, as indeed it is. So, imagine as if its just another person, but your friend or family member. It will need its own bank account and have to have its own signed agreements if its going to do anything.

Make sure you consult a qualified professional or two.  I'd be happy to chat if you'd like.  Just let me know.  Take care, and good luck.

[Scott Forgue]

@James Brants

Are you holding or flipping? If buying in an LLC to hold you only want 1 or 2 in the LLC. Keeps assets separate for protection, LLC is is also better for taxes. You can still get loans through the LLC which may be slightly higher depending on where you get the loans. Corporate Private Money (Hard Money) lenders have 30 yr mortgages that are competitive, if not better then conventional banks now.

[Mike Klarman]

Be prepared to to put down 20% on any purchase.  Then another 3% in fees and closing costs.  Then there is the cost of the debt.

Come with 30k for every 100k of property value.  This is not a cheap game.  And don't show the bank that you are a new investor and you can "barely" do the deal.  Meaning, if the bank asks to see 33k in a bank account and you show exactly 33k they may turn you down.  That's why I tell new investors all the time, show whatever you can.  I don't care that you only need to show 33k to close the deal.  Show 100k if you can.  Make the bank feel like you will have no problem making the payments.