LLC for Multifamily Property

[Will Schryver]

If I'm looking to acquire a multifamily (2-4 units) property with an LLC and lenders will not lend to the LLC directly, I'm assuming I will personally back the mortgage? If so, the DTI shouldn't be an issue as long as the DSCR is 1.25 (or at least 1.0), right? Also, will the LLC retain the title/ownership of the property, but I will personally have the mortgage in my name? What about later on when I want to go through a portfolio lender, will they lend to an LLC or do I have to again have the note in my name?

Let me know if this is pretty typically in the buy and hold strategy or there's another approach. I just want to do everything I can to keep my LLC and personal assets separate to avoid piercing the corporate veil.

Will 

[Kevin Siedlecki]

@Will Schryver. This is typical. I am not a lawyer, but a few things to keep in mind.

1. You will have to get the loan in your name, so DTI will be an issue. If this is your first deal, then the rent on the new acquisition may not count. That depends on the bank and whether tenants are in place when you buy it. You might have to qualify for the loan without any of the rent counting as income.

2. You will also have to buy the house in your name. If you do change ownership to the LLC, you will do it through a quit-claim, which could possibly trigger a due-on-sale clause in your mortgage. It doesn't happen often, but legally the bank could make you pay the mortgage back if the house is not in your name anymore. That isn't as big a deal as it sounds if you have business history and a relationship with a bank. You'll just have to get a commercial loan to pay off the residential loan.

3. As long as you are running the LLC properly, you will still get protection of your other assets. The only caveat is that in a nightmare situation, the LLC owns the house but not the loan, so a lawyer could go after the whole value of the house, and you'd still be responsible for the loan. In that case, you might have to sell other assets to pay off the loan, so you are indirectly putting that at risk. This is something I have never been 100% clear on, and would love the input of a lawyer in this thread!