Challenges Purchasing Property with an LLC Holding Titles?

Question

Hello - Has anybody recently encountered a challenge to find traditional lenders who will permit you to purchase an investment property through an LLC without steep premiums? In this situation, the mortgage is based off off my personal credit, but I will hopefully hold the title in an LLC I've formed for this property.

Current Findings: I've asked five lenders locally (CT and NYC) of varying sizes and was told by 4/5 that they "don't allow LLC's to hold title anymore." US Bank, for example, won't sell residential mortgage products to an owner holding title in an LLC. When final found a local bank that would allow my LLC to hold the title, it comes at a steep premium to market rates: 30% down payment + 5.25-6% APR for a 30-year fixed mortgage.

The last lender I spoke with said that the industry has changed in the last 3-5 years to not so easily put residential mortgage products in the hands of investors. He said that most banks won't allow LLC's to hold title because there is complexity if foreclosure is needed.

Any advice or thoughts would be much appreciated!

Thanks!

James

Bill Couture · Answer

Hi James. I'm a business loan officer at a local, mutual savings bank in Eastern CT named Jewett City Savings Bank. If you want to take title in the name of an LLC, you'll need to obtain a commercial mortgage. It's unlikely that you'll find a lender that will give you a fixed rate residential mortgage in any other title than your own name. Unfortunately as you're experiencing, commercial mortgages come with a premium (higher interest rates, points, closing costs, etc.)

If the building is four units or less, you might be better off just obtaining a conventional residential mortgage in your own name. Granted, you lose the protection of an LLC, but your insurance agent and attorney should be able to help mitigate the additional risks.

Michael Noto · Answer

I would contact @Bill Couture, he is very knowledgeable on the subject and if he can't help you he may be able to point you in the right direction.

Michael Lee · Answer

Hello James!  You have picked a good place to learn and to ask questions.  I do not have any experience with an account or using a SD-IRA account but I have done a bit of learning about it.  It's my understanding that typically it has to have a non-recourse loan and they make a rule that requires a larger down payment. of course, you cannot have any personal association with property bought in that account.  Just ask them of the proper way to do that.  If the company you use for that type of an account should supply you with a list of lenders that do that type of loan.  Any profit you make is deferred income for tax purposes.  You might need to close into that name or your personal name and then make a transfer into that account name afterwards.  You might get a better loan with owner financing or using a Private Money Loan or a "cash rich" Partner.  To increase your chances show them the math that all of their prosperity at a later date and allows them to pay their tax at a later date and its spreads out income over the length of the loan instead of it all being liable and being paid at the end of that year after it closes.  Best wishes!

James Marshall · Answer

Hi Guys - Thanks for the quick responses.

Bill - I appreciate the insight. What you're saying matches with what I'm hearing from that banks.  It sounds like I'm best to proceed with a mortgage in my name and a good insurance policy.

Thanks! Much appreciated.

Challenges Purchasing Property with an LLC Holding Titles?

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