4 guys one house loan?

Question

I have no idea where to start, but 3 of my coworkers and I are interested in investing in rental properties. Collectively we have a budget of free cash that we have been setting aside of 2500 dollars a month. I have recently purchased a home and one of the coworkers has as well. Will anyone lend to someone that has recently purchased a home or to four people collectively? We are also in the process of starting an LLC but want to get started investing in rental properties as soon as possible. Can someone point me in the right direction on what to look for in a lender? We aren't looking to flip the property but some may need some refurbishing.

Scott Smith · Answer

Hey Louis,

It can be a lot of work to involve that many people, but I would definitely recommend the LLC for protection. Without suitable liability protection you could be facing liability from all four individuals (any legal suit in one partner's personal life can "spill" over into the investments,) while one bad lawsuit regarding one of your investments can also "spill" out into the partners' personal assets. You can check out this article on setting up venture specific LLCs. If you plan on continuing into more investments moving into the future, it may also be worth looking into just running an "operations" LLC and then housing your investment properties into a Series LLC, which will save you money in the long run.

I would highly recommend finding a great team of professionals to support you guys as you move forward (might even find different partners/partnerships through these connections) who can advise you on different peices of investing. I always talk about setting up a "dream real estate investing team." This would invluce professionals with personal experience in your type of investing who are attorneys, bankers, CPAs, property managers, contractors and more. Finding professionals who can advice you through tricky situations, especially when you work with partners who may have different opinions, is very important!

Feel free to shoot me any questions if you have them.

Louis German · Answer

Well we have a goal, and are all on the same page. Nothing gets done if we don't all agree with it. It isn't brought up again and every idea we have needs to be presented with reasons on why its the route we should take. Each 2500. Not sure how I messed that up.

Caleb Heimsoth · Answer

@Louis German you’re going to get drowned in paperwork my friend.  I don’t recommend going this route.  2500 a month for 4 people? That’s a lot of decision makers to figure out what to do

Mike Burkett · Answer

@Shawm Everton  @Louis German  Shawm a bad credit score increases the interest rate and may lower the LTV.  640 is probably at the low end of acceptable credit score for a loan in an LLC.

Louis, you can form an LLC in 3 days.  You can do it now or you can do it later.  If you 4 guys are planning on doing this as a business and are buying several houses and you all want to be equal partners, just get the LLC formed now and buy the properties in the LLC.  Keep in mind, properties in an LLC don't qualify for Fannie Mae loans.  Fannie Mae loans have better interest rates and terms.  If you qualify for those loans, you can buy a property in each of your 4 individual names and each of you would get qualified as the borrower.  You would then each have a 25% undivided interest in the property.  You can always deed them into the LLC after the loan closing.  There is a limit to how many properties individuals can finance with Fannie.

Louis German · Answer

All credits are between 680-804. Should we wait till LLC is formed and then look for a lender or take on individual loans and pay them off, or take a collective of the four members one loan?

Shawm Everton · Answer

@Mike Burkett if he were to go thru his LLC and his credit isnt all that great will that effect him in getting a loan if he is trying to do it thru an LLC?

Mike Burkett · Answer

@Louis German  Absolutely.  Anybody have bad credit?  If everyone has good credit, you can buy properties in your individual names or if the 4 of your are going to be partners in the LLC, you can buy them through the LLC.  Lots of different ways to do it.

Fred Shatzoff · Answer

@Louis German  Louis I can help you.  Sending you a pm