Question about 30 year terms and LLC purchases

[Kyle Robarts]

Hey all - newbie here.

I have looked locally in my market for some lenders to get pre-approval for rental property purchases. However, I am running into an issue that only 15 or 20 year terms are available. At the advice of my attorney, I would like to purchase the rental properties through an LLC. One lender told me that if I purchased the property in my name that I could get a 30-year term. Is this common? How does one go about avoiding personal liability if you cannot purchase with your LLC.

Is it possible to initially purchase the property in your name and then transfer it to your LLC?

Appreciate any input and education. Thanks!

[Joe Splitrock]

@Kyle Robarts the LLC question is the most common topic on BiggerPockets. Starting out, many people assume they need an LLC for liability protection. There is two reasons it may not be the best choice:

1. Starting out people have very few assets to protect. Good insurance is more important, because anyone seeking money goes after the deeper pockets. 

2. Maintaining separation from the LLC is very difficult. Once you mix with personal, a good attorney can pierce the corporate veil.

As far as financing, conventional lending is only available if you purchase in your own name. Conventional lending is going to give you the best interest rates and options for up to 30 years fixed term. Generally speaking, once you buy inside an LLC, the rates are higher and you find less fixed term options. Even if they do a 20 year amortization, the rate is generally only fixed for 5 years.

Some people suggest buying the property and securing financing in your own name, then transferring to an LLC. Some mortgages prohibit this, but over the last couple years there have been some that allow this. The key requirement is that the person with financing, remain the titled name. Talk with a lender upfront about transferring into an LLC. I would also argue that holding the mortgage in your name and transferring it to an LLC could be easily pierced by an attorney, therefore is kind of pointless.

I like @Erickson Sainval suggestion of a Trust. From what I know about a trust, it provided much better protection and one reason is anonymity. In many states you can hide your identity and address in the trust. By comparison, LLC generally have publicly viewable registries, so you can easily find the name and address of the owner.

I would research the topic and find out what is best for your situation. Just keep in mind that an LLC is not a substitution for good liability insurance and managing your property in a way to reduce risk. The best way to avoid liability is to remove situations that could create litigation in the first place.