How to buy a property with a new LLC

Question

Hi all

I'm new to investing in real estate and I have a question I was hoping the seasoned investors can answer for me!

1. How can I purchase a property through a new LLC?

My goal is to buy and hold a rental property and I do want to hold it in an LLC.  I'm not sure how you get a loan for a property this way.  What are others doing who also have their properties in an LLC?  I spoke to my mortgage guy in a big bank and he states he can lend to me personally, but not through a new LLC.  Thoughts?

Thanks

Jessica Miller · Answer

@Johnny Flewellen brilliant ! Hows it been going ?

Stan Butler · Answer

In my case the answer is no, we do not have any loans with the bank where our corporate accounts reside.  There was a time many years ago during capital crunch mode where the lenders wanted us to have a depository account at their bank in order to borrow money, but we resisted.  I am not sure if they are still pushing that requirement anymore.

Amanda T. · Answer

Sounds good. Do you end up getting the loan from the same small local bank as the one you set up the business account with?

Also, any recommendation on how to phrase what I'm trying to ask?  Or is it just as simple as would you lend to a new LLC?

Nicole A. · Answer

Oh, and @Amanda T., check out each bank's website too...sometimes they give business/investor-specific information regarding mortgages.

And, don't be afraid to ask multiple people the same question; I've run into those who give me one answer and someone else who says "they didn't know what they were talking about; here are the facts". ;-)

Johnny Flewellen · Answer

I put all my properties inside of my trust which I then get a line of credit on instead of properties being looked at individually. As I acquire more properties and other assets my credit line gets extended. In addition, I never purchase any properties with mortgages.

I use my LLC's to control short term paper assets since it's for cash flow.

Amanda T. · Answer

Ok great!  So I will have to get out there and do some foot work for that.  I will go into some local banks.  I know about the 20-25% down payment, so I'm prepared for that to be mentioned.  Thanks for the input, much appreciated!

Nicole A. · Answer

Yes, definitely go in and talk in person with some small(er) banks...and talk to several.

In MD, my LLC has two mortgages through Susquehanna Bank. Each one is 15 (or is it 20?) year at 4.77%. I had to put 25% down each time, BUT, the funds didn't have to be vested!

We also had to personally guarantee the loans.

Another cool thing, just a few months after having the LLC bank accounts and mortage with them, they gave our LLC a credit card with a $30K limit on it!....and this was a brand new LLC. :-)

Stan Butler · Answer

We have many properties, all titled in LLC entities.  If you want to close the loan with the title in the LLC name, you are going to have to get a portfolio loan.  Your best bet is to find Community Banks in your area and go in to talk with their lenders.  You will have to personally guarantee the loan and you can expect the rate to be 2% higher than conforming rates.  You will also not find anything longer than 20-year amortizations with 3, 5, or 7 year balloons in my experience.

There are others that might advocate closing in your own name, getting a conforming loan, and then changing the title, but that seems like playing with fire to me.  There are also some song and dance options using trusts, but thats way more involved...

Jon Holdman · Answer

You will need to find the right lender.   They are out there.  Talk to 20 banks in your area.  At least 19 will say no.  Keep going until you've found one.

Realize you are not going to get a 30 year fixed rate loan in an LLC.  Those are "conventional loans".  The rules  are defined by Freddie and Fannie and those rules say individuals only.  You should be able to find 15 year fixed rates loans, though, with 20% down.

You will very likely have to give a personal guarantee.