Conventional lending options for 1st deal with multiple partners

[Quentin B.]

I, and my two other partners, are completely new and looking to do our first multifamily deal together investing our own money and using a conventional loan. We learned quickly that purchasing through an LLC would be less advantageous.

But we also quickly discovered that many lenders will require all partners to personally guarantee the loan otherwise (meaning the whole loan is on each of our reports) while we would only be able to claim a portion of the rental income (based on our agreed split).  

So, my question is are there investor friendly traditional lenders that will allow one of us to personally guarantee the loan and treat the other two partners as investor loans (We are investing in the Atlanta area)?  

In that same vein, how will that affect Debt-to-Income (i.e. if economic splits are agreed upon can the principal partner capture payouts to the other investors as a management fee)?  

[Chris Mason]

Residential real estate investment lending is one of those where a very small percentage of us does the bulk of the volume. Most residential LOs are scared of investors & REI mortgage math, so they say silly things like "can't use rental income for two years," etc, just to pre-torpedo deals.

To answer your OP question, there are lots of ways people do it.

One way, that I like, is for the group to simply take turns. I buy this one, you buy that one, she buys the next one, etc.

When it comes to deploying capital, we can serve as each other's hard money lender (but we can agree to be more generous with loan terms than any other HML would be!). You can use a hard money loan for down payment provided it is secured by some other property (another investment, your primary residence, etc).

• This keeps everyone able to qualify for additional traditional 30YF residential loans, because no one has 1/4 of the income being nuked by 100% of the PITI on their tax returns (what you correctly identified as problem in OP).
• And it lets everyone get to their own Fannie cap of 10 financed properties. 10 for you, 10 for me, 10 for Jessica! If we all started signing on each other's mortgages, we'd be capped at 10 TOTAL for ALL of us, instead of 10 per person in the group.
• No messy entanglements. If we ever have a falling out, or I decide that REI isn't for me, we don't end up suing each other.
• The HML thing still makes it possible to help each other out when/as needed. Renovation expenses, acquisition costs, down payments, whatever.
• Everyone's roles and responsibilities is 100% crystal clear.