Multiple properties with different partners under one LLC?

Question

I currently hold a property in an LLC without any partners. I am getting ready to buy another investment property with the same criteria as the property in this LLC and would like them to be grouped together for financial reporting etc.

I will be purchasing this property with a partner. Can we buy with my current LLC that holds an asset my partner has no ownership in? Perhaps I can have my attorney draw up a partnership agreement for individual properties within one LLC?

Also, if the partner is carrying the financing, should I be on the mortgage? As a co-signer? Does it matter? In my knowledge it shouldn’t, as long as I am represented on the Title of the property.

I will be helping my partner secure financing and will walk them through the bank process. If we get a traditional loan, is it possible to get financed with a partner under an LLC?

My partner doesn’t have any real estate holdings and will qualify for traditional financing. I like the low rates and long-term loan as we are going with a buy and hold 5-10 year strategy.

Or is commercial lending the route to take with partners? The current property held in this LLC was financed by a commercial loan.

Thanks,

Corey

Jesse Rivera · Answer

You got a couple great answers and a couple "meh" answers. These are great starting points. But do yourself a Biiiiiiig favor and find a great real estate attorney and accountant, and spend the money to get the advise from them. It will save a ton of money in the end.

When I started I did the do it yourself model, thinking I was so smart, and my partners were good guys. What could go wrong? I learned the hard way, and now run everything by my attorney and accountant. Money well spent.

Sarah Brown · Answer

Hi Corey! Some additional insight below.

I currently hold a property in an LLC without any partners. I am getting ready to buy another investment property with the same criteria as the property in this LLC and would like them to be grouped together for financial reporting etc.

I will be purchasing this property with a partner. Can we buy with my current LLC that holds an asset my partner has no ownership in? Perhaps I can have my attorney draw up a partnership agreement for individual properties within one LLC? I would start a separate entity with your partner. Your partner can be listed as a managing member with your current LLC on the new LLP (Limited Liability Partnership). Probably a good idea to have a simple operating agreement that spells out the ownership of each individual on the LLP

Also, if the partner is carrying the financing, should I be on the mortgage? As a co-signer? Does it matter? In my knowledge it shouldn’t, as long as I am represented on the Title of the property. Depending on what state you are in, ownership is in the title, not in the lending. Adding you to the financing would be more of an operational agreement between you two than an ownership stake. Keep in mind if something happens to your partner, that lien doesn't magically go away. You will need to have a contingency plan for this type of situation.

I will be helping my partner secure financing and will walk them through the bank process. If we get a traditional loan, is it possible to get financed with a partner under an LLC? Most banks won't loan to an LLC, only individuals. A commercial loan will generally loan to an LLC, but if you start a new one it will have no credit and you will need to personally secure the debt. It may be worth securing the debt in the personal name and titling in the LLC.

My partner doesn’t have any real estate holdings and will qualify for traditional financing. I like the low rates and long-term loan as we are going with a buy and hold 5-10 year strategy.

Or is commercial lending the route to take with partners? The current property held in this LLC was financed by a commercial loan. This is 100% property dependent and dependent on long term strategy. If the property is 5+ units, you will have to go commercial.

Marty Johnston · Answer

Hey @Corey MeyerAll great questions here - Let me try and pencil this out for you - see my answers in bold below.

I will be purchasing this property with a partner. Can we buy with my current LLC that holds an asset my partner has no ownership in? Perhaps I can have my attorney draw up a partnership agreement for individual properties within one LLC? What you would have to do here is draft up an Amendment to your original Operating Agreement for your Current LLC, and add him to that entity. Bear in mind of course, he will now also have ownership in your other property as well since you are blanketing all your assets under this entity. Some relationships are cool with this - others not (totally up to you!) Here's a link to a Free Operating Agreement Amendment Template you can use. Some lenders require notarized docs, but at least you can save yourself the legal fees.

Also, if the partner is carrying the financing, should I be on the mortgage? As a co-signer? Does it matter? In my knowledge it shouldn’t, as long as I am represented on the Title of the property. This will actually depend on your Lender's requirement. Some lenders require you be on the loan if you have greater than 20% ownership in an Entity. Some 15%, others anyone with 1%+ have to be on the loan. It all depends on their parameters, so you may want to ask your lender that question. That Amendment to OA I mention above? Well, it could affect how you complete that depending on your preference for being on the mortgage or just title.

I will be helping my partner secure financing and will walk them through the bank process. If we get a traditional loan, is it possible to get financed with a partner under an LLC? Your LLC can be "owned" by another LP or individuals depending on how you structure it. If I'm understanding the above correctly, you'd just need to add both you and the partner as 'members' of the LLC with the amendment, and decide on the ownership %'s of each member.

My partner doesn’t have any real estate holdings and will qualify for traditional financing. I like the low rates and long-term loan as we are going with a buy and hold 5-10 year strategy.

Or is commercial lending the route to take with partners? The current property held in this LLC was financed by a commercial loan. Well, in most cases you won't have a chose but to obtain a Commercial Loan for any property that is 5+ MF. 1-4 Units you can go either way (close in an LLC/Corp or in your personal names). If you're looking at MF with 5+ units, then Commercial is your only option.

Hope this helps!

Eamonn McElroy · Answer

There's nothing stopping your LLC (upper tier entity) from owning an interest in a new LLC (lower tier entity) if the goal is consolidated financial reporting.

However -- that's not your only option. There are pros and cons to each path forward, as well as varying levels of administrative and compliance burden.

Speak with your attorney AND tax professional.

Corey Meyer · Answer

@Eamonn McElroy. Thanks!

Corey Meyer · Answer

@Marty Johnston

Thanks so much for your in-depth answers to all of my questions, I really appreciate the explanation.

Multiple properties with different partners under one LLC?

Multiple properties with different partners under one LLC?

Most Popular Reply

8 Replies