How to buy real estate as a group

Question

I will be collecting money for 3 investors to purchase multifamily units.

1) Is LLC or S corp the best entity?

2) Is it possible to apply for a mortgage without anyone's personal credit?  I assume one of us needs to apply based on personal credit and income requirements.

3) Going forward, how do we get bank financing without pulling our personal income/credit?

John S. · Answer

You do have to have a primary.  If there are more than one investor in the company you only have to use the ones that have over 40% credit.  As for S-Corp or LLC just remember that you a group of investors and you need to protect the individuals and I personally believe that an LLC with good insurance on everything separately is your best idea. But, that is not necessarily true, depends on the investors in the business. They may want an S-Corp for tax purposes. So like mentioned above get a tax lawyer or a tax accountant and ask a few questions. I am unsure how to not get credit pulled for each deal you make. Unless, you find owner financed deals only.

Chris Tracy · Answer

1) Is LLC or S corp the best entity?  Talk to your attorney

For answer #2 & 3, you would typically use what is called a KP (key principal) and that person would help you qualify for the loan.  I'm assuming we're talking about larger deals?  Your FICO score etc is irrelevant.  Commercial is not like residential.

Chris Tracy · Answer

Account Closed- Correct.  I'm in 2 deals with my group and my personal credit is mediocre at best, I've never purchased any property, I have student loan debt up the wazoo, and no capital invested in the deals.  True story... It's an amazing business and probably why everybody and their brother is looking for apartment deals.  Good stuff

Account Closed · Answer

Chris,

If a multiple owner LLC is using a key principal's funds and financial strength for the acquisition of a multifamily asset, are you saying that remaining LLC owner's financials are not considered? If you could further elaborate, it'd be very appreciated. No legal advice sought, only opinion. Thanks.

Will

Bruce Warner · Answer

Generally, owning investment real estate in S corporations or C corporations (or LLCs who have elected to be those entities should be avoided.

How to buy real estate as a group

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