Lenders - How do I show interest in LLC on personal financials?

Question

Hello,

I have been working on coming up with a more accurate personal balance sheet (as have my two partners in my LLCs) and personal financial statements.

One things we are a bit confused on is how to show the assets (rental homes) and liabilities (mortgages) of the properties we hold in 3 way LLCs. Our lenders have told us that since we EACH needed to sign 'personal guarantees' on the loans to the LLCs each of our 'personal debt' for those properties shows up at 3 times what we each owe when divided up evenly.

An example would be if our LLC bought a property for 750K and borrowed 600K. Seems like we should each 'own' 250K  worth of real estate, and 'owe' 200K in mortgage. Sounds easy enough. What lender is saying is that when they do credit check it shows up that EACH of us are responsible for the ENTIRE 600K.

So is there 'a generally acceptable method' of how this should show up when we come up with our personal financial statements? Do we each 'own' 750K and 'owe' 600K, or each just 1/3 of that? The later seems logical, but not sure.

Thanks, Dan Dietz

Chris Mason · Answer

If you're doing commercial or hard money it shouldn't matter.

If you're trying to posture yourself for Fannie type financing, divvy up the properties so that in each case one of you and only one of you is paying the entire mortgage from an account in just that one person's name. The one person paying the mortgage is also the one person that gets (and reports) rental income (settle among yourselves once in a while, like if Joe gets shafted $25k from doing this then make sure you get right with him at some point - buy him a Subaru, or each of you cover $12.5k of his slice of the next down payment, or something). After a year...

Moving forward, assuming you want to stay in the Fannie world and milk GSE subsidized financing for as long as possible, don't do partnerships in quite this way. Instead take turns being each other's private lender (for down payments, paired with Fannie mortgages) and keep each one just in one person's name. This way, rather than the group of 3 being capped at 10 total, you can get to 30 total. On top of that, you will not be faced with underwriters giving you 1/3 of the income but hitting you with the full liability.