Limited personal guarantees split across LLC members

[Jonah Richard]

As the title suggests, this question is about whether any investors out there have been able to - when refinancing a residential property bought with cash and held by a multi member LLC - assign limited personal guarantees to the LLC members.

I’ll provide some details.

I’m currently working with two investors with private capital and we are making offers on triplexes. We plan to purchase the property all cash, renovate it (again, using cash), then refinance to pull funds out. Pretty standard.

We will also purchase the property with an LLC. For the purposes of simplicity, let's say each of us three members retains 33% ownership in the LLC.

Personal guarantees are obviously non negotiable since this is a one-off LLC formed specifically for the target property.

When we go to refinance after renovating, we would ideally like to have each of our personal guarantees be commensurate with our ownership stake in the LLC.

In other words, each of the three members would personally guarantee 33% of the loan amount for a total of 100% loan guarantee.

One nuance here is that we will require the loan to be held in the LLC's name, meaning we'd only be eligible for a commercial loan.

From what I can tell in talking to a number of local banks and a mortgage broker, there are only 2 options for personal guarantees. 1) one LLC member will take 100% of the guarantee or 2) all members take 100% guarantees individually. I have yet to find a bank that is OK with limited personal guarantees where each member's personal guarantee be commensurate with their ownership stake in the LLC (where the sum total of personal guarantees across LLC members adds to 100% of the loan amount).

Does anyone have experience with this 3rd option?

Thanks in advance!