Financing within an LLC

[Nur Al Sharif]

Hi all,

For those of you who have invested under the structure of an LLC, what type of loans do you typically search for? What have you had good or bad experiences with?

I have read that it is very difficult/near impossible to issue conventional mortgage at a 4.5-5% interest rate if you are incorporated, due to Fanny Mae & Freddie Mac restrictions. If this is true, what viable financing options are available? 

It would appear that most portfolio loans range in the 7-10% range, and commercial loan rates are upwards of 6.5%. 

Thanks for the help!

[Scott Smith]

Originally posted by @Britt Clark:

Originally posted by @Nur Al Sharif:

@Pete Bauer wouldn't that be harmful to my personal credit score? Assuming the lender is unwilling to transfer the deed, or has a penalty attached to transferring deed. 

Another option I have read about, but that I'm not sure is common practice or viable yet, is initially issuing the loan with a personal guarantee, even though the deed would be under the LLC.

@Nur Al Sharif - I am having the same issues. I want to get my financing within an LLC and it's very difficult to find a reasonable interest rate.

I have worked 25 years to build a modest net worth and will not risk losing it in a frivolous lawsuit by not having the proper legal entity in place that only costs a couple $100 to create and protect my life’s work.

People who advise that an insurance policy alone is enough are not necessarily correct in my opinion. Or, they have a very low or negative net worth and aren’t concerned with the risk of being sued. I understand that perspective. But, it doesn’t apply to my situation and risk tolerance.

Did you ever find a reasonable loan program?

Check out this article. You can still buy the property in your own name, but at that point you will transfer it into a Land Trust rather than directly into the LLC. After it is in the Land Trust you can create the LLC as the beneficiary and yourself as the trustee (the manager.) When established in the correct order the Land Trust doesn't trigger the same red flags with the Due on Sale as the direct transfer of a deed into an LLC, and the Land Trust can be created in such a way that your name does not have to appear on public record for the property - you can have your attorney sign for it as a "nominee trustee" until it is formed and then have it pass down to you after the signing is complete.

This is a much more flexible system that works at large, but if you can find a bank that works direct and favorably with an LLC that is generally a bit easier (though your name will still appear on public record for that property.)

This isn't legal advice, just my opinion as an investor.