New to real estate. Should I create an LLC? How difficult is lending options?

Question

My friend and I are starting our real estate journey together as partners. We know we want to create an llc but is it difficult to secure a loan? What are our options and what should we expect if we structure our llc prior to looking into lending options? Thank you in advance! This community is great!

Patrick Roberts · Answer

The LLC wont do anything special for lending. If you plan to use Conventional loans, the LLC is off the table. DSCR loans allow lending to LLC's, but the LLC members will likely need to personally guarantee the loan. At the end of the day, you'll still need good credit, income (rental income from the property will suffice for DSCR loans), and cash to close, including a downpayment (likely 20%+).

If you're asking how to get a general purpose loan to the LLC, then that's not going to happen without several years of operating history and organized financials for a CRE lender to underwrite.

Not trying to rain on your parade, but this is much more complicated than just forming an entity and getting a loan. I recommend you consult with a lender with expertise in investing, preferably someone local to you, to discuss the lending options best suited for your goals, strategy, and tactics. This will provide clarity regarding what matters and what does not, as well as what's realistically available to you.

Robin Simon · Answer

Accurate information here - heres lots of links on the DSCR Loan option, which is generally the go-to and best loan type for investing if you are using LLC (DSCR Lenders are generally not only LLC friendly, but prefer it and in some states require it!)

✅12-Part DSCR Loan Series published here on BP
➡️https://bit.ly/3IUUIBZ

Jonathan Greene · Answer

This question is one that has been asked and answered like a billion times, but the search on here isn't the greatest.

The short version is - unless you have cash to buy or are getting a DSCR loan or buying a commercial property, you aren't starting an LLC to put this in. For residential mortgage, an LLC needs two years of its own tax returns or occasionally, a local credit union where you have an account will ok it.

The bigger question is about your partnership. You want to have long discussions about your goals, how to break a tie when you don't agree, and you should always have the exact same amount in the account.

Taz Zettergren · Answer

@Michael Nguyen welcome to the forums! If you and your partner are in it for a long term buy and hold option I would recommend purchasing homes in your personal name then quitclaiming to an LLC. This way you're able to utilize conventional loans, each of you are allowed 10 of those. You can certainly buy the property in the name of the LLC but you'll have to use a DSCR product which will have an interest rate that's 1% higher than conventional.

Chris Seveney · Answer

The LLC will have zero impact on lending. The lender will look at you and your business partner. It does not matter whether you are starting a real estate business, restaurant, car wash, or amazon commerce business - the lender will first look at you and your partner and how much skin you have in the game, your experience and the risk of the loan not getting paid.

So if you have good credit and cash, it makes starting any type of business a lot easier.

Patrick Roberts · Answer

Whatever cash is going to be used for the entity should ideally be in the company accounts for 60 days. This will vary by lender, but 60 days will cover seasoning for most. Also, many lenders are picky about the operating agreement and structure of the LLCs. If the LLC is used for something other than owning and operating rental real estate, you may have a problem. If they see that youre generating cash for operations via a non-RE business activity, it could be an issue. This is very much lender-specific and will vary.

Roger Mace · Answer

I see a lot of information about LLC's here.  Most of my lenders do not loan to private individuals.  They want a business entity

Michael Nguyen · Answer

I have another question about lending to llc. So my friend (business partner) and I are securing capital by selling our collectibles. As we sell through these items should we create a bank account with the llc to "season" the capital for when we are ready to reach out to a lender when we are ready to make our first investment?

Michael Nguyen · Answer

Thank you ALL for your input. This community is really helpful and I am grateful to join and be part of this. Your guidance, tips and strategies are very much appreciated and needed for a new investor like myself. I will definitely pay it forward as my experience grows in this fun journey!

Michael Nguyen · Answer

Thank you!

New to real estate. Should I create an LLC? How difficult is lending options?

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