Can an LLC be used to circumvent reserve requirements?

[Scott Pierro]

Hi, I'm currently operating 7 properties all financed through conventional loans without an LLC. I'm considering an LLC this year for the 20% tax bracket for pass throughs from the new tax law. I plan on moving my financed properties into the LLC using land trusts. What I'm really curious about now though, is whether or not moving the properties into an LLC in this fashion would reduce my personal number of financed properties when applying for additional loans, mostly with respect to the fannie mae reserve requirements.

"If the borrower owns other financed properties, additional reserves must be calculated and documented for financed properties other than the subject property and the borrower's principal residence. The other financed properties reserves amount must be determined by applying a specific percentage to the aggregate of the outstanding unpaid principal balance (UFB) for mortgages and HELOCs on these other financed properties. The percentages are based on the number of financed properties:  2% of the aggregate UPB if the borrower has one to four financed properties  4% of the aggregate UPB if the borrower has five to six financed properties, or  6% of the aggregate UPB if the borrower has seven to ten financed properties (DU only)."

[Chris Mason]

Originally posted by @Scott Pierro:

Hi, I'm currently operating 7 properties all financed through conventional loans without an LLC. I'm considering an LLC this year for the 20% tax bracket for pass throughs from the new tax law. I plan on moving my financed properties into the LLC using land trusts. What I'm really curious about now though, is whether or not moving the properties into an LLC in this fashion would reduce my personal number of financed properties when applying for additional loans, mostly with respect to the fannie mae reserve requirements.

"If the borrower owns other financed properties, additional reserves must be calculated and documented for financed properties other than the subject property and the borrower's principal residence. The other financed properties reserves amount must be determined by applying a specific percentage to the aggregate of the outstanding unpaid principal balance (UFB) for mortgages and HELOCs on these other financed properties. The percentages are based on the number of financed properties:  2% of the aggregate UPB if the borrower has one to four financed properties  4% of the aggregate UPB if the borrower has five to six financed properties, or  6% of the aggregate UPB if the borrower has seven to ten financed properties (DU only)."

You'd have to refinance all those investment properties into commercial financing with the money being lent to your LLC and not to you or appearing on your credit report. Super rich people can do that, which is how Trump continued to get financing even though half his LLCs have declared bankruptcy.

Mortals such as us, generally, can't pull it off. We do not play by the same rule book as the ultra wealthy, alas. 

If you do pull it off, post back with details so we can all learn. :)