LLCs & mortgages from a new investor

[Dima R.]

Hi all,

First, a huge thank you to BP and the entire community. I just started my REI journey and have found the BP community immensely helpful. Thank you all for what you do.

I have a few related questions regarding LLCs with which I was hoping you could help. As background, I have a low net worth as I'm just starting my career, but a high income job that I worry exposes me to liability. I'm interested in owning LTRs through LLCs both for asset protection and anonymity benefits.

Question 1: How can I best obtain a mortgage on a LTR that I'd like to own through an LLC? I understand that the options include:
1) obtaining this as a personal mortgage and then moving the property to an LLC, with the potential problems of a) triggering a due on sale clause, b) piercing the veil if I'm actually paying the mortgage, potentially negating asset protection benefits , and c) title insurance complications
2) obtaining this as a personal mortgage and then moving the property to an LLC, and hoping for the best that the lender doesn't act on the due on sale clause. I'm surprised by how frequently this seems to be people's solution. Am I missing something about the risk that they're assuming?
3) avoiding the above problems if the loan is held by Fannie Mae because of updated guidance since 2016 (https://servicing-guide.fannie...), so long as I solely own the LLC. Though there seems to be similar guidance from Freddie Mac, I continue to see posts, including on this forum, that seem to suggest that nearly all conventional mortgages do have such due on sale clauses.
4) obtaining hard money or other loans that don't have the above requirements.

Are there options that I'm missing in considering the above, or a mistake in how I'm thinking about this?

Question 2: If the solution to the above is option 3 (i.e., that this is allowed for Fannie/Freddie conventional mortgages), what options exist if instead I want to purchase a property through an LLC with a business partner?

Question 3: Is the longer term solution for the theoretical LLC that I control to own multiple assets, in which case they and their cash flow would be considered by mortgage lenders for future mortgages?

[Grant Thompson]

Hello Dima,

It is important to note that everyone's situation is different, but here is my advice. If you are set on using an LLC for liability protection then the safest bet is to go with option 4 (this is how my business partners and I have operated). You will pay a slightly higher interest rate, but avoid the concerns you have noted with the other 3 options. Options 1 & 2 carry risks that I personally like to avoid at all costs.