No Mortgages for LLC's

[John Rocker]

I am a newbie and just established an LLC for the purpose of buying single family,duplexes and quads as buy and hold investments. The mortgage broker just informed me that lenders will not finance a conventional mortgage to an LLC, only to individuals. This totally goes against the purpose of the LLC to protect me from law suits . How are you guys financing real estate under an LLC?

[Brie Schmidt]

@John Rocker

Residential Loans : Will only be funded to a person, not a LLC. Terms on residential are 30 year or 15 year fixed with rates in the low 4% with no pre-pay penalties. Typical down payments (we call this LTV or loan-to-value when referring to the amount borrowed) for investors are 20% on one unit and 25% for two to four unit properties. The largest property you can buy with this type of financing is 4 units. To qualify for this loan you have to provide the bank with personal financial documents and your approval is based off your income, credit score, and DTI (debt to income ratio) You can have up to 10 residential financed properties but cannot cash out of any investment property once you get past 4 loans. You could buy it in your name and then transfer to the LLC but there is a clause in your loan that if you "sell or transfer" title, they can accelerate the loan and make it payable in full now. Will they do it? Who knows. Some people did it years ago with no problems and some people are getting unpleasant letters in the mail.

Commercial Loans : Will only be funded to a LLC. Terms are typically 5 year loans amortized over 25 years with a balloon payment for the balance due after the 5 years. LTV's range from 70%-80% and rates start around 5% and you will be subject to a prepayment penalty. While these are typically used to fund 5+ unit properties you can use them to buy any size property. To qualify for the loan the property has to be higher than a 1.2 DSCR. What that means is your NOI (net operating income) has to be $1200 or higher if you want a loan payment of $1000 - so cash flow needs to be higher than 120% of the debt service. They usually have a cap rate minimum as well that will vary by market and asset class. If you are looking for a loan under 1 million it will generally be recourse, so you will need to submit a PFS (personal financial statement) to qualify along with your track record/history in the business to get approved.

Portfolio / In-House / Credit Unions : These lenders typically keep the loan on the books, so they don't need to follow conforming guidelines.  Rates and terms vary drastically from bank to bank.  

If your sole purpose is for asset protection, that is a widely debated topic on the site.  Here are some articles about it:

http://www.biggerpockets.com/renewsblog/2013/10/18...

http://www.biggerpockets.com/renewsblog/2009/3/18/...

http://www.biggerpockets.com/renewsblog/2013/08/17...

http://www.biggerpockets.com/renewsblog/2010/6/20/...

Just search "asset protection" on the top right and you can spend hours reading the ongoing debate :)