Kailua, HI · Member since 2015 · 12 posts · 4 votes
Hi everyone,
I have a question regarding doing a deal with 2 partners. Here's the scenario. 3 partners, equal shares, buying an investment property. All 3 will be on title, but the loan will only be under one person. We will create an LLC to operate out of.
The business gross' $2000/month. PITA =$1000/month. So the LLC nets $1000 month and that is split 3 ways. Easy enough. My question is when the person who has the mortgage in their name goes to get another property, will the lender look and see that the property gross' $2000/month and allow that person to count 75% of it? Or since they are only 1/3 owner of the LLC do they just get to count 75% of 1/3rd? Ideally, I think they should get to count $1000 of the gross (to cover the expenses) and then 1/3rd of the net correct? What is the best way to set up the legal side of this so that the person who is on the loan does not reduce their borrowing capacity in the future?
I have a question regarding doing a deal with 2 partners. Here's the scenario. 3 partners, equal shares, buying an investment property. All 3 will be on title, but the loan will only be under one person. We will create an LLC to operate out of.
The business gross' $2000/month. PITA =$1000/month. So the LLC nets $1000 month and that is split 3 ways. Easy enough. My question is when the person who has the mortgage in their name goes to get another property, will the lender look and see that the property gross' $2000/month and allow that person to count 75% of it? Or since they are only 1/3 owner of the LLC do they just get to count 75% of 1/3rd? Ideally, I think they should get to count $1000 of the gross (to cover the expenses) and then 1/3rd of the net correct? What is the best way to set up the legal side of this so that the person who is on the loan does not reduce their borrowing capacity in the future?
Thanks so much for the input.
In the residential loan world, we don't see or care about LLCs or the associated operating agreement. For better or worse.
In all probability, the way this will populate on tax forms and on the borrower's credit is with them getting 1/3 of the net income, but being fully liable for the full PITI. This will significantly harm DTI.
Unless you're ready to give up the FNMA-subsidized 30YF residential loans already, or unless this is the last mortgage that person wants, such arrangements rarely make sense.