Need Advice - LLC/Business structure philly

5 Replies | Philadelphia, Pennsylvania

I'm looking for some pointed advice and am hoping that someone in Philly has had a similiar experience.

We started in real estate a couple of years ago and due to our inexperience we decided on an ultra conservative strategy in the form of all cash purchases. We set up an LLC, moved money into our business account, and cash purchased a couple of properties using a buy, hold and rent strategy. We've been met with success and have been looking to expand. Now that we are confident with our skill sets and capabilities we've decided to add some risk in the form of debt.

This has turned out to be complicated and the cost of borrowing money seems outrageous. I've been getting mixed messages from a number of lenders and experts. As a result, I'm desperate to get pointed answers from someone who may have first hand experience. I'd love to read thoughts on any of the below questions.

1) We've set up our business as an LLC. Our properties lay within the LLC. Despite having no debt, and free/clear assets we can't get lenders to lend to our LLC. By lend, I'm referring to a 30 year fixed mortage with which we could purchase additional properties and cash flow. I mean everyone is looking for the lowest amount of interest for the longest period of time. What's the most efficient/effective way of doing it?

2) I've been told that if I wanted to get a mortgage for an investment property that I would have to take it as a personal loan. Taking this loan would place the property under me personally and outside of the protection of my LLC. I'm told that although lenders do not like it, I could transfer the property under the LLC after closing. If I were to transfer the property to my LLC after closing I would have to pay the transfer tax again. Has anyone done this before? Does anyone have experience with taking a personal loan, but transferring a property directly to an LLC?(Philadelphia, PA)

3) If i avoided the 1.5% transfer tax and kept the property under my name, I don't think I could write off interest, repairs, for tax purposes. Would that be correct?

4) Knowing that our conservative approach has produced free and clear assets in the form of SFH's and Multi's , what's the most efficient/effective way of leveraging that value?

Any input to any of these would be greatly appreciated.

Hey Neal,

I work for a full-service brokerage and know of a lender with very competitive rates and no prepayment penalties if you work under an LLC. I think there are some different plays for your second question and it's going to depend on the situation. With the volume I've seen go through my office, there are plenty of ways to leverage value when buying properties in Philly. I just sent you a DM.

I started with big banks, but then engaged mortage brokers. All of which said I had to take the loan as a personal. One of which advised I move everything out of the LLC.

Thanks Sam, will follow up.

@Neal A.

Glad to hear that you have success with your investments but it stinks that you can't find a right lender. 

1) I've recently refied couple on my properties held in LLC with a 12 year balloon commercial mortgage amortized over 30-years. No pre-payment, no origination fees.

2) That's not true. Just look for another lender. You may have personally be guarantor on the mortgage though. 

3) Philadelphia has 4.1% transfer tax. And this transfer tax the same no matter how you take title on a property.  Even if a property in your personal name you still be able to right off expenses associated with the property. Talk to your accountant about this one. 

Hope this helps 

Neal, my wife and I are going through the same process. I've been told that with an LLC, you will need to use commercial lending, and the rates are a little higher than a personal mortgage. But I think the protection is probably worth it. Also, local and/or community banks are more likely to be interested in this type of lending, so I would look at a local bank in the town or area where you are looking at property.