First loan - LLC obstacle

19 Replies | Fort Lauderdale, Florida

Hello, amazing community,

I am about to purchase my first duplex in Florida and having a hard time obtaining a loan because of my LLC not being active for over 2 years.

I have been working as W-2 for 8 years. Become self-employed in 2018, started my LLC in 2019. I am unable to get a conventional or FHA loan simply because of the fact that my LLC has been established only 9 months ago.

I have excellent credit, no debt, great income, able to put around $100,000 downpayment and still so far it seems like the only option is hard money or seller financing.

Anyone experienced in this area, willing to advise?

Thank you

@Lee Jedlicka Forgive my ignorance but if you are applying as an individual, why do they even know or care about your LLC? I just created my LLC a few weeks ago so this topic is of interest to me!!

There are definitely a lot of options when it comes to financing real estate. If conventional methods aren't working out for you, then I recommend, as you said, looking into a possible seller financing option. Those will always be preferred since you basically get to choose your own terms. 

If that's a no-go then private money could be an option. If you can find a local (or out-of-state) investor who would be willing to loan you the money for this property and in return, he gets equity, cashflow, or interest with the loan repayment plan, then that would be the next recommended route. You just want to be sure that you incorporate some type of liquidity event (refinance or sale) within 5-10 years in order to return all of the investor's capital because no one wants their money illiquid for too long. 

Or maybe just try partnering with someone. If you can't acquire this loan, conventionally on your own, then find someone who could also benefit from getting in on the deal. The terms in that scenario could also be endless, depending on what the two of you want out of the deal. Just be sure it benefits both parties before approaching them with the opportunity.

Another option could be hard money. Yes, you have to pay points, and the interest rate is typically higher than conventional or private money, but if you can calculate those costs into the deal and you still come out on top, then who cares what the interest rate is. As long as you can get into the deal and it still conservatively benefits you then everybody wins. 

Whatever option you choose, it's important to:

1. Never over leverage 

2. Be sure you're being conservative with your underwriting

3. Know your preferred exit strategy before funding the deal & have a backup strategy just in case

4. Choose the option that financially makes the most sense, not the option that gives you more equity or cashflow if it means over extending the deal

5. Lastly, take action. You'll never be able to build that cash-flowing empire if you can't close on a deal. Having 20% of something is better than having 100% of nothing. 

To your success! 

@Lee Jedlicka

You should be able to get a commercial loan. It is a little bit more expensive than personal mortgage but way cheaper than hard money.

Some lender can offer DSCR based loan too where your own financial status would be irrelevant.

Hey Lee,

I work for a mortgage broker, typically what I tell my clients that are investors is to apply for a Non-QM loan. DSCR, bank statement, etc. These offer flexibility, and underwriting is typically less strict. After a year or two, refinance into a conventional loan. Another option, is to find a conventional lender that will accept an LOE or an exception for the particular situation. A lot of lenders that keep a portfolio of loans (usually the smaller ones) have the ability to do this. Conventional and FHA, are pretty nuanced, but working with a broker with access to more lenders is never a bad thing. I will say with COVID-19 lenders have been getting more strict. Your situation doesn't seem that crazy though. You shouldn't have much trouble. Let me know if you need anything.