Getting financing when using a Texas LLC

14 Replies

Greetings everyone, I have been trying to find a lender for our LLC's first deal. Everytime I mention that I want to buy property with the LLC, all of the lenders that I have spoken with inform me that they cannot help. I have said that I have no problem guaranteeing the loan, I have 20% down, & my LLC is over two years old with good profit. Is there something else that I need to do, or am I just looking for lending in all the wrong places?

@Clinton Jensen   A few things:

1.  Local Banks prefer to loan to individuals since "that's the way we always did it" - They focus on YOUR ability to pay the loan and can take 2-3 months to close on a property (or to decline the loan).   The upside is they offer rates below what lenders like me would offer and charge lower closing costs.

2. Why a Texas LLC? I am not offering legal advice here just saying that many folks are heading to Nevada for their LLC for increased privacy and a more "LLC Friendly" legal system. There's nothing wrong with Texas - I just think you may prefer Nevada.

3.  Hard Money Lenders/Alternative Lenders can often close faster, with a fraction of the paperwork.   Additionally, while your local bank may "tap out" after 4-5 loans guys like me would love to loan on 100 properties.    Most importantly, we focus on the property and don't concern ourselves with your income at all.

Good luck!

Thank you for your reply @Timothy Maloney

1. After attempting to get financing from a bank with traditional methods and what your stating, it makes sense that they wouldn't want to loan to a LLC.

2. I went with a Texas LLC because I use it for my other contract work that I perform. What your saying has me wondering if I should take a look at the possibility of setting up another LLC in Nevada for investment purposes. Would you happen to have any tips on where to go for that information?

3. I have heard of using hard money/alternative lending, but I was under the impression that it was used on larger scale investing and isn't for individuals that are just starting off. Is that not the case? 

I appreciate the information and thanks again for the help.

@Clinton Jensen Nevada or Wyoming LLCs and structures are all available for anonymity. In Texas we have no annual fee, allow series LLCs, and there is no state income tax (I know Nevada doesn't either, not sure on Wyoming). Unless you really don't want your tenants to know who you are, I don't see too much benefit. You will have to pay to have someone set it up for you, pay them to also be your registered agent in the state annually, and pay the annual filing fee. Seems like a lot just to keep your name off the property. And this doesn't stop private investigators or courts from knowing who you are so if the entity is ever sued, they will have easy access to who owns what. I would stick with what you have with one big change. Have a different LLC or if you are using a series LLC have a different series opened for each segment of your business. I would not combine businesses under one LLC. It opens up your assets to litigation. Keep them separate.

I work with a hard money lender in Texas and we offer up to 100% financing for purchase and rehab costs even for rookies. This is a short-term (6 or 12 month) loan. Most HMLs in Texas will lend to new LLCs, but may charge a premium on interest. Not all though. Let me know if you have any further questions regarding that.

Good luck with your acquisitions!

When you approach local banks are you talking to the residential loan officer or someone from the commercial lending side.  I have found that the commercial loan officers have no problem with LLCs and actually expect them.

Thanks for all of the useful information. 

@Ryan Blake I will definitely look at an additional LLC for investment purposes. I was only looking for asset protection so it looks as though the lone star state is the best bet for it.

It looks like from what I am hearing from you is that a HML may be the best option with a LLC unless I can do as @Paul Ewing said and contact commercial loan officers. I will have to contact a few of them and see if they can help. 

It looks like I have a lot more research to do.  

Agree you need a commercial lender, or a bank that keeps loans in house (portfolio loans).

A residential lender that is selling the loan needs it to conform to Fannie Mae, and that's a non starter for an LLC.

But for your first deal, it's also not a big deal to have it in your name with better and easier financing terms, and you can get a million dollar liability policy for a lot less than you will be spending with a hard money lender.

@Clinton Jensen Where do you do your personal banking? If you are at a large national bank, I would move my money. Yes, larger banks offer much better options for personal banking and have multiple branches nationwide and super helpful/intuitive websites. But they won't lend to you. They have protocols that they must follow and no room to relax any requirements based on relationships.

A small bank will look and see how much and how long you have been banking with them when they take your loan into consideration. They will also look at what your plans are. You need to come in ready to present your purchase as a home run that will flood you with cash. Use actual numbers and bids, have it laid out well, and be confident. This is what will get you loans. I don't know of any banks in Houston but I know of two very investor friendly banks up here in Fort Worth.

Thanks to everyone for the information. 

I contacted a few lenders and they confirmed that for the LLC it would have to be a commercial lender. I did happen to find out that I can get a loan for property in my name and then transfer the title to the LLC. Technically that would trigger the "do on" clause, however my bank said that they wouldn't call the loan.

@Patrick S. Is the insurance that you are talking about home insurance?

@Ryan Blake I use a credit union for everything and so far, knock on wood, no issues. Now that I know about the policy on loans I will probably use them for at least our first property. I would like any info you can give about the banks you mentioned, so I can compare the numbers. If the numbers add up I may switch. 

If you're getting a regular vanilla 1-4 family home and trying to get a typical 30 year loan, then just put it in your name. If you're getting 5+ and a commercial loan, then having it in whatever LLC you want won't be an issue. I just did a huge loan on an LLC I got a month ago. But the banks don't really give a #[email protected] about the LLC name as the loan is still guaranteed by me.

If for some reason you REALLY want an LLC for your 1-4 family, then buy it in your name and deed it over after. Yeah it could trigger a due-on-sale but those are your options.

LLCs for residential are overrated and not needed.  Not sure how that bad advise started.

Originally posted by @Clinton Jensen :

Thanks for all of the useful information. 

@Ryan Blake I will definitely look at an additional LLC for investment purposes. I was only looking for asset protection so it looks as though the lone star state is the best bet for it.

It looks like from what I am hearing from you is that a HML may be the best option with a LLC unless I can do as @Paul Ewing said and contact commercial loan officers. I will have to contact a few of them and see if they can help. 

It looks like I have a lot more research to do.  

 I would avoid using HMLs unless you just can't qualify for a commercial loan. You need a bank that keeps the loan in-house instead of intending to immediately "flip" the loan to another lender.

@Clinton Jensen   I don't think anyone answered one of your questions about insurance, they're talking about an umbrella policy which provides additional coverage if someone sues you, above and beyond your normal home insurance policy.  Definitely recommended and fairly inexpensive.  I have a $2M policy for about $660 per year.

- Tom

Originally posted by @Tom S. :

@Clinton Jensen   I don't think anyone answered one of your questions about insurance, they're talking about an umbrella policy which provides additional coverage if someone sues you, above and beyond your normal home insurance policy.  Definitely recommended and fairly inexpensive.  I have a $2M policy for about $660 per year.

- Tom

Definitely investigate insurance with a good insurance broker. But, you need to know what your primary policy won't cover, because if your primary policy won't cover it, your umbrella won't. That's where an LLC fits in, to help fill the gaps in insurance coverage.

@Clinton Jensen I'm a hard money lender here in Texas and we lend money to investors with LLC's all the time. You can get a traditional conventional loan through a bank for a rental property, but like you've found, they will only lend to individuals and will expect you to put 25% down.

If you are looking to do fix and flips, your best option is private money, hard money or getting set up with a line of credit through your local bank (a HELOC is an option too if you own property with enough equity).

You can always refinance out of your fix and flips into a 30 year conventional mortgage, but again, they'll want it to be in your personal name. That being said, we've got some 30 year loan products for buy and hold investors where we can lend to LLC's.