After purchase loan to fund return of capital

[Alexander Funaro]

Hi,

I am making a go at RE investment for the first time, I have some of my own capital that I will be using to pay 100% cash for 2-3 single or small multi unit homes. I will be rolling these homes into an LLC. However, I do not wish to keep all my capital in these properties indefinitely. I would like for the LLC to obtain a "portfolio loan" and then return capital to me from funds obtained from that loan, in effect getting leverage I would have had if loan was taken at first.

The reason I am doing this is I wanted to get in on a hot area quickly, before I could obtain such a loan, and also after ~1 year of history of profit/loss within the LLC my thought is I would get better financing terms for such a loan.

My questions are: does all that sound like something that will work? Namely will a financier be ok loaning an LLC money knowing the use for it is a return of capital? Will the return of capital be seen as such from accounting perspective, and hence not subject to income taxes?

Thanks in advance
A

[Alexander Funaro]

Thanks all for the input, great insights all around

It's a relief that this is possible, it was always my intention to keep roughly 20-25% equity in the properties through the loan process, using the loan to take 75%-80% equity out. My major concern through all this is protecting the money I already have in a worst case scenario of some legal suit transpiring that bankrupted the LLC. If I have 100% equity in it I lose all that, I am willing to pay some interest to share some of that tail risk, especially since I am new to the game. I will also be looking into some umbrella insurance plans as well to supplement.

I was under the impression the whole time the loan would have to be commercial if going to the LLC, I have heard conflicting things about getting conventional mortgages in my name and somehow "rolling" them into an LLC. My plan was buy property in cash, start LLC with an initial investment of the properties, get commercial loan for LLC, take out equity to share risk.