What are the Pros and Cons of adding a partner to my LLC?.

[Shane Ward]

My son graduated college last year with his MBA and had 20k he wanted to invest. I was full on with learning a lot of strategies to use at that time so I opened an LLC, took out a HML for two properties to BRRRR and a HELOC on my primary to buy a third property to also BRRRR. my son put in his 20k for rehabbing the one property. Now we are ready to refi out of all three and my credit score took dump because of credit utilization ( I'm at just over 610 on the Experian site 90% utilization). Could or should I add my son to the LLC as a partner to use his credit score (740) to pull our cash out?

[Natalie Kolodij]

Keep in mind adding a 2nd person to your LLC is going to change your entity with the IRS over to a partnership and a form 1065 will be required annually in addition to your personal tax returns.

You'll need to track basis, report more info, ect. 

[Michael Plaks]

@Shane Ward

The easiest way to foul up your relationship with your son is to do business together

[Shane Ward]

@Michael Plaks Thanks for the advice, I would never have thought of that.

[Ashish Acharya]

Originally posted by @Shane Ward:

My son graduated college last year with his MBA and had 20k he wanted to invest. I was full on with learning a lot of strategies to use at that time so I opened an LLC, took out a HML for two properties to BRRRR and a HELOC on my primary to buy a third property to also BRRRR. my son put in his 20k for rehabbing the one property. Now we are ready to refi out of all three and my credit score took dump because of credit utilization ( I'm at just over 610 on the Experian site 90% utilization). Could or should I add my son to the LLC as a partner to use his credit score (740) to pull our cash out?

 Even if adding your son was good idea from business perspective, banks look at the lower credit scores among all the partners in the deal when you do cash out refinances. 

[Michael Plaks]

Originally posted by @Shane Ward:

@Michael Plaks Thanks for the advice, I would never have thought of that.

Ask me how I know. I once hired my oldest one.  :)

[Basit Siddiqi]

@Shane Ward

You want to consult with a couple lenders about adding your son before going on to Add him to the LLC.

Portfolio lenders do not go based on the rules of Fannie/Freddie. They mostly follow their own rules or rules of the firm that purchases the mortgages/loans on the secondary market.

With that said, many lenders will require that all "managing members" or "General Partners" have credit scores that are above company standards.

You won't know without calling a couple banks. It would suck to add him and you still can't do a cash-out refinance.

[Shane Ward]

Thank you