What is the best financing method to invest through an LLC?

Question

Some banks have separate departments for business and consumer lending. Consumer lending seems to be more accessible for investors who are newer to the game and don't have large portfolios. Additionally, banks may have a limit of 4 or 5 mortgages that can be financed under one SSN at a given time.

What is the financing workaround for someone who would like to acquire 2-5 properties annually and prefers to develop and maintain a relationship with one banker?

Jonathan Bombaci · Answer

Hi @Lawrence Cole if your goal is to grow a large portfolio then I recommend trying to develop a relationship with a local lender. Try to find a local credit union or regional bank with a strong commercial lending division. Open up a deposit account with the bank and then start doing you're loans through them. When you become a repeat customer they'll help you navigate the framework of what you need to do. We have over 17 loans with 1 credit union in our area (Jeanne D'Arc in Lowell MA) and due to our balance they need to bring our loans to the credit committee for approval. It ends up just being an extra step in the loan approval process but we are good customers with a healthy deposit relationship.

I believe our credit union has a $20M cap so eventually we'll need to establish a relationship with another bank but I know Enterprise Bank (larger regional bank in our area) has a $100M cap per borrowing entity. If we outgrow both of them then that is a good problem to have.

I'd say go ahead and get started worry about hitting a cap later. If you grow your portfolio right there will be plenty of lenders seeking you out to establish a relationship.

Best,Jon

Kimberly Marshall · Answer

It will cost you more but I would look at using a hard money lender or a private lender. Most of them require you to lend in the name of a business and not your personal name. I have used Lending Home and Patch of Land for flips I have completed. They get the loans done quickly as long as the numbers make sense. There are also a number of Private lenders who do not have the same restrictions that banks do. Connect with people in a facebook group or local real estate investing group for some referrals.

Brenden Mitchum · Answer

Hey @Lawrence Cole, welcome to the BP community!

Your best bet would be to find a portfolio lender. Many local banks/credit unions will do this. Call them up to confirm whether they sell off their loans or keep them. If they keep them in house then they'll be more flexible vs. a lender that has to package and sell their loans. What exactly this loan product will look like, I'm not sure.

You'll likely need to accept poor terms starting out to show them you're serious but I'm sure this will improve as your relationship grows. However, you should first educate yourself a bit further in regards to lending so that when you do call around you sound legit. It also wouldn't hurt to have a business plan or some kind of pitch deck/booklet with a bio. This will help legitimize yourself and your business.

Hope this helps a bit! Please, feel free to reach out anytime if you have other questions or just want to chat!

Ken Naim · Answer

@Jim Miller LLC laws vary state to state but generally need to be in state of the business activity or where you live. If they are not in the state of business activity then it again generally needs to be registered with the state of the business activity otherwise it doesn't exist for lawsuots in that state which defeats much of the purpose of having one.

You can have nested LLCs depending on your needs but that is generally used for high equity transactions, say $1m or more.

What is the best financing method to invest through an LLC?

What is the best financing method to invest through an LLC?

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