Getting a mortgage on an LLC property

[Debbie Zimmer]

Hello everyone! I’m hoping you can provide some guidance to us on this subject.

Background: 

We are new investors and have set up an LLC with a Line of Credit attached. We used the Line of Credit to pay cash for our first rental property, as well as the renovations. The rental property is titled in the LLC. Now that we have it renovated and rented, we would like to take out a first mortgage on the house so that we can pay back our Line of Credit so that we can go purchase another property (sounds easy on paper). This was our Business Plan – pay cash using LOC, renovate and rent/resell and pay back LOC - buy another property - repeat. We went to a bank that loans to LLCs, and had to provide them everything on our personal finances in order to apply for a loan. We got declined for the loan due to our personal financial credit (we have a lot of moving parts right now trying to get this real estate gig off the ground). Even though we are sitting on a completely renovated house with 100% equity, and we have a nice portfolio secured for investing and we still both work full time with decent salaries – the bank was concerned about our credit scores ☹. One of the main reasons for starting an LLC with a separate LOC, was to keep it separate from our personal.

Does anyone have any advice or recommendations on how to get around all the red tape? It is really putting a wrench in our Business Plan.

Thank you!  Debbie

[Chris Baber]

I would suggest you look at moving the property into your names, do the financing in your names, then move the property into a land trust, which is owned by your LLC.

This can help with anonymity since the land trust lets you make changes to the asset/ownership without having to report it, but still puts the asset into the LLC for liability reasons. You can then sell the land trust, which 'owns' the asset, instead of selling the asset yourself. This strategy can prevent you needing to report the change of ownership, which can trigger the 'due on sale' clause in most mortgages. There's more to it than just these points, but I think it's worth studying a bit. It could save you FAR more time down the road by avoiding headaches, so consider the time spent studying as another investment, which can pay rewards for the remainder of your investing career.

I've been studying YouTube videos from Anderson Advisors and have gotten a LOT of great information about structuring, and the reasons to do it.  Clint Coons has a pleasant voice to listen to, and and some really great ideas and explanations of his reasoning, which is more valuable to me than the ideas themselves.  I play videos in the background while I do other things, but find myself stopping a lot to really listen to important points critically.  But even with just passive listening, the ideas make it to your subconscious, so you'll still learn quite a bit.

With that said, what you do after refinancing is open to you, but I think you'll have much better luck with the loan in your names to get started.  Like Greg said, until the business/company has a history, track record of successful investing, cash flow and taxes reported, and assets, doing it in the business name will be much harder and more expensive.