Getting Financing as an LLC

[Jim S.]

I'm just getting started in investing and I've been reading a lot about why it's a good idea to set up an LLC which I've already done. Recently though, I'm learning that it can be difficult to get a bank loan as an LLC. Can anyone explain how this works? If I were to get a mortgage under my own name for a buy and hold property, can I then at some point transfer the title to my LLC? If not, then what are my options? Thanks.

[Michael S.]

As someone who has LLCs and has loans through the LLCs, here's my two cents:

1. NEVER take the loan out in your own name, and then transfer it to the LLC. Why? Because any potential asset protection provided by the LLC has been pierced by this maneuver. Start the LLC with your own money, then have the LLC reimburse you for the start-up costs. After that, absolutely all major expenses (loans, repairs, etc) must be made directly by the LLC through the LLC business account or credit card. Otherwise, any potential legal protection by the LLC could/will be compromised.

2. All our LLC loans are essentially non-conforming mortgages. The bank that has lent us the money can not sell the loan as a standard mortgage. The loans are made to the LLC, not us as individuals. The funds at closing come only from the LLC. My recommendation is to talk with any bank(s) you have pre-existing relationships with about loans through your LLC for real estate. Some banks will not be interested; others will jump at the opportunity. You can get rates that are significantly better than hard money, but slightly worse than a standard 30 year fixed mortgage.