LLC and Funding

[Peter Mckernan]

Hello everyone,

I have been searching for the answer to this question through many different sources. I spoke with a lawyer today that gave me some insight, but did not have an exact answer for this question. I have also spoken with a lender that was unsure, so now I turn to the forums since I know there are so many knowledgable people on these subjects that could help me out with this question.

I formed an LLC with two business partners and we are going to move one of the partners to a more passive investor position. Since we are doing this we hit a wall wondering how can we get conventional lending for a buy and hold property. For example, lending for a four-plex with only two of us acquiring the financing and only use our third partner for the downpayment/rehab costs?

We want to use him for a portion of the downpayment/rehab costs and give him a return on his money, but not use him for a third borrower. I know that we can change the operating agreement to anything we want for positions and even vote to have him out of the LLC with the majority vote. Would it be better if we had a majority vote and made it just the two partners within the LLC and use the third guy to fund our needs from a private money investor outside the LLC?

It is just tough to figure out how we can use his money for help with financing, but not make him give all his financials to the lender, and also not use his credit score since it's pretty low compared to the two other investors within the LLC.

Any suggestions or knowledge will help! Thanks! 

Peter 

[Steve Vaughan]

I have had no issues obtaining financing using only certain members' credit when dealing in the commercial world.  Once over 4 units, they start looking at the collateral as part of the income source.  LLCs and residential property will always be difficult to finance and insure.  It can happen, but doesn't fit well.  Any problem with going over 4 units @Peter Mckernan?  10x, remember??