Rental Property Investor · Member since 2020 · 35 posts · 18 votes
Hi All - I would like to get into a partnership with a friend(non W2) who has been investing in RE for few years and would like to know the best way to structure the LLC such that mortgage lenders will be OK with him owning ~ 50% equity?
Asked differently, How do I get financing in an LLC with a partner who does not have a W2 and will do all the work?
More color below:
- He will do all the work and bring in the knowledge. Capital contribution TBD.
- He is going full time in RE so wont have a W2. Imagine that will raise a flag with the lenders because he will have more than 20% equity, likely around 50%.
- I am ok giving the personal guarantee on the loan just by myself. I have a full time job and solid credit.
- He does not mind being on the loan. But we just do not know if the lenders will be OK with that.
- He will have NOT enough income from his investments when he goes full time in RE for the lenders to be fine. He will have decent liquidity in the banks.
Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
6y
Depends, who's personally on the loan docs? You can do it without the LLC manager I guess, but they'd want to look at the operating agreement. They''re going to go after the people on the loan docs and then the property as recourse, so they may still need something signed by all members.
However, it happens sometimes since you may be able to get a tax break if you put someone like a non-profit as a GP.
Rental Property Investor · Member since 2020 · 35 posts · 18 votes
6y
Thanks. If we go traditional LLC route with him as managing member with 50% equity. When lenders see the operating agreement, they will see his name and the equity for working as the manager. At that time, they will want to see his financials and will see no W2 and most likely will deny the lending.
Any idea how do I structure this LLC creatively if at all so he has equity but I also get the loan from the bank?