buying a 2-4 unit under LLC in texas

[Carissa Holmes]

Newbie here! and ready to "Professionalize" a bit - I've purchased a few properties over the past few years in my personal name. I want to make the next purchase - a 2 - 4 door property in Texas - in my LLC's name (also based in TX).

My primary question is: how does the process of acquisition (soup to nuts - your details will not be wasted on me!!) differ between these two “buyers” (residential funding vs. commercial). For example, proof of funding - with a loan in my personal name, I get a pre approved, and my agent on the deal sends that pre-approval along with my offer(s) yes, I generally submit more than 1 :) and the process moves forward from there but how do I show a seller (likely another investor) as well as the agent(s) I engage with that I have access to the financing to make the acquisition. 

Adjacent question - Am I correct in stating that (based on the above), I am looking for a residential property that I can purchase with commercial financing?

Thanks (a bunch) in advance!

Carissa

[James Johnson]

The process of acquisition for residential funding and commercial funding can differ in several ways. Here are some key differences:

1. Proof of funding: With residential funding, you can typically get pre-approved for a loan in your personal name, use that pre-approval to show sellers/agents that you have access to financing. With commercial funding, you will need to provide more detailed financial information about your business or investment portfolio to show that you have the ability to make the purchase. I had to provide my LLC paperwork, banking info, and most of the first time commercial purchases you will give them a background on your investment style and holdings…

2. Property type: Residential funding is typically used for single-family homes, condos, and small multi-family properties (up to 4 units). Commercial funding is used for larger multi-family properties (5+ units), office buildings, retail spaces, and other commercial properties.

3. Loan terms: Residential loans are often fixed-rate mortgages with terms of 15 or 30 years. Commercial loans may have shorter terms 

4. Down payment: Residential loans often require a down payment of 3-20% of the purchase price. Commercial loans may require a larger down payment (20-30%) and may also require additional collateral. I was surprised when one of my purchases required 25-30% down… but the more you use the same funding company the more perks you get for repeat business!  

To show a seller or agent that you have access to financing for a commercial property, you just need to provide a letter of intent/proof of funds from your lender or financial institution. This will show that you have the ability to make the purchase. 

Regarding your adjacent question, you can purchase a residential property with commercial financing if the property is being used for business purposes (such as a rental property). However, if you are purchasing a primary residence or a vacation home, you would typically use residential financing.

Good Luck!