My 2 Options: Personal vs Commercial Loan

[Danny Lyu]

Hi All,

First-time poster here. I’m currently in the pre-approval process to purchase a 2-4 unit multi-family property. I’ve approached a local bank in Upstate New York offering a 30-year loan with a 10% down payment. However, the loan would need to be under my name, as they won’t allow LLCs.

I’ve received advice from others who feel comfortable with this arrangement as long as they have high insurance coverage limits, which the lender also recommended. Assuming the insurance premiums don’t significantly impact my cash flow (which is one of my primary goals), how do you assess the risk of taking out a loan under my personal name versus opting for a commercial loan that requires a larger down payment and comes with a higher interest rate?

My goal is to spread my funds across multiple investments to grow my portfolio while keeping my down payments as low as possible. At the same time, I prefer to minimize liability, though I’m not a seasoned investor.

Is this one of those calculated risks that investors eventually become comfortable with, or should I prioritize limiting liability from the outset?

Thanks in advance for your advice!

[Danny Lyu]

Quote from @Nick Belsky:

Quote from @Danny Lyu:

Quote from @Nick Belsky:

Quote from @Danny Lyu:

Quote from @Nick Belsky:

@Danny Lyu

What bank is offering 10% down on an investment 2-4 unit property?  That is not likely unless there is more to this than what you are telling us.

Cheers!

Hey Nick - just confirmed over the phone with the lender. Still waiting on terms. 

 Who is the lender?

 Local lender named Community Bank

https://cbna.com/ ?

That’s the one. 

[Nick Belsky]

Confirmed.  90LTV Investment for a 3-Unit.  Roughly 8.875% on a 30yr Fixed fully amortized.  Don't see details about vesting in an entity is allowed, but looks like this bank lends in a few states: Florida, Massachusetts, New Hampshire, New York, Pennsylvania, and Vermont.  No PPP on any products.  Looks like a Portfolio product that the bank will hold and service as well.

I'll dig in deeper with them, but not seeing them on NMLS.  Not seeing them nor their Investment affiliates on Broker Check either.  https://cbna.com/

This is a full doc product.  Tax Returns, Income, etc...

Cheers!

[Tom S.]

@Danny Lyu  If you're getting 10% down on that loan product, I would definitely do that and just close in your personal name.  Will be far easier to purchase more property with 10% downpayments vs 20-25% for each one.

Umbrella insurance isn't too expensive, $2M for $1200 per year.

Just be sure to run the properties as a good business, address any concerns brought up by the insurance company (they usually do annual inspections).  If they say put up higher railings, additional smoke detectors, etc, complete it promptly and document it.

I've been in the landlord business for 20 years, and I've always kept my properties to code and well maintained.  No issues with any lawsuits.

Good luck!

[Joy TaylorSimmons]

That could be the case Jaycee. But the real deal is that the bank did not want to put the property in an LLC.

The bank had a problem with my holding LLC and after speaking with the law firm who created the LLC they were still confused.

[Jaycee Greene]

Quote from @Joy TaylorSimmons:

That could be the case Jaycee. But the real deal is that the bank did not want to put the property in an LLC.

The bank had a problem with my holding LLC and after speaking with the law firm who created the LLC they were still confused.

If the attorney is also confused, I'd be worried the bank won't want to do other things for you and cause you problems.