Loan structure with partners

[Charlie Redding]

Hey all,

Two partners and I are looking to invest in multi-family real estate. We live in the Seattle area so prices here are astronomical -- hence the need for three partners. The benefit, of course, is that rental rates are also quite high.

We're working on financing and structure options. We're planning on forming an LLC to provide protection against personal liability (assuming we are taking care of the property, of course). However, I'm having trouble finding information on lending options.

Because the property will be held in an LLC, are conventional mortgages off the table for us? 4% fixed for 30 years sounds pretty nice. Conventional financing through a business bank for an LLC would be a 10 year note, fixed for 5, with a 25 year amortization.

All three of us will have ownership in the property, loan, and LLC.

Any advice would be extremely helpful!

Thanks!

[Ryland Taniguchi]

Originally posted by @Charlie Redding:

Hey all,

Two partners and I are looking to invest in multi-family real estate. We live in the Seattle area so prices here are astronomical -- hence the need for three partners. The benefit, of course, is that rental rates are also quite high.

We're working on financing and structure options. We're planning on forming an LLC to provide protection against personal liability (assuming we are taking care of the property, of course). However, I'm having trouble finding information on lending options.

Because the property will be held in an LLC, are conventional mortgages off the table for us? 4% fixed for 30 years sounds pretty nice. Conventional financing through a business bank for an LLC would be a 10 year note, fixed for 5, with a 25 year amortization.

All three of us will have ownership in the property, loan, and LLC.

Any advice would be extremely helpful!

Thanks!

Usually you would structure to have it in one person's name and then spell out the profits splits, contributions and management responsibilities in a JV agreement that is an Exhibit A on an LLC operating agreement.

Get normal bank financing and then quit claim the title to the LLC. If you are doing a fix to rent (BRRRR) or develop to rent, then you do the rehab, rent and then do the refinance in one person's personal name and then quit claim title to the LLC after the refinance.

With BRRRR, the downpayment requirement maybe less as you get equity by improving the property. In Seattle, we find properties where we can do a unit lot adjustment to add let's say 3 new townhomes or rowhomes. When we get the lots for free like this from a unit lot adjustment, we can build a 1550 property for around $200,000 ($165 per sq ft plus holding costs) that rents for around $2600 a month. Some of these you maybe able to add a separate entrance from the front for the top two floors and a separate entrance from the side for a bottom floor. Then AirBNB the bottom floor for $129 to $159 per night. Then rent the top two floors.

So these are a couple of ways to get 1% rule cash flow properties in the city of Seattle. I just started wholesaling deals like this to other investors but I have 52 projects going on right now myself like this that are mostly in Seattle.

I also own turnkey out of state 2% rule rentals but am finding the markets out of state are getting pricey as well and the cap rates get compressed. Right now the best cash returns are build to rent and then the second best is BRRRR.