How to approach loans for properties to be moved into LLC

[Gregg Orenstein]

All,

I'm a new investor who has decided on an area and has a good team in place. My initial investment will be a buy-and-hold SFH for long-term rental. I wish to be legally shielded from day of purchase, but in order to do so also means that the property should LLC-owned. The LLC already exists and is incorporated in the state where I'll be purchasing my first investment property.

Every book or podcast has a loan strategy, but they never discuss the pros and cons (or even the feasibility) of applying that strategy when the property is to be purchased through an LLC. Or whether purchasing a property through an LLC is a smart, or dumb move.

Consequently the available information is less than robust, and for every piece of "sage wisdom" I find, there is another which contradicts it.

So, I'm writing here in the hopes that others can share their personal experiences threading this very particular needle.  Assuming that the loan I'm after is as close to a conventional mortgage as possible, responses to the following will be extremely helpful.

1) Is there a common-place strategy which is preferred by most investors looking for a mortgage loan, whose ultimate goal is LLC ownership of a
property?

2) Did you take out a loan/mortgage under your name, and then move the property to the LLC? How long did you have to wait until you could affect the change of ownership?

3)During the time the rental property was under your own name, did you take any measures to protect yourself and your assets from lawsuits?  What form did this protection take?

4) Was your title insurance cancelled when the property changed hands?  If so, was it difficult to have the new title insured?

5) Given your experience, would you say that obtaining a mortgage in your name, and subsequently transferring ownership to the LLC is a better or worse choice than obtaining the loan for the property through the LLC?

Apologies for the long post, but I'm honestly very thankful for your responses.

Take care,

Gregg

[Jeremy H.]

I'll be honest I skimmed about 50% of that but I'll tell you what I did 

I initially purchased my rentals under my name and did conventional loans - then spoke with the title company and transferred them to my LLC. Now why did I do conventional loans? Because the loan terms are much better than doing a DSCR loan - cheaper origination, less money down, and better rates. This is recorded on the deed so now technically the LLC owns the rental. Is it a little weird that I'm paying the mortgage and the LLC owns the rental? Maybe. Did the mortgage/deed get assumed by the LLC? Yes. But I have never heard of a loan getting called due as long as the payments are being made. This is a common practice. I guess absolutely worst case if they loans got called I'd have to refi into a DSCR loan

After you have 10 loans in your name or your DTI is maxed there's a few different loan types - the most popular probably being a DSCR loan. They simply base the loan on the ability for the property's income to pay for the loan. There is a DSCR ratio (go look it up and read about it) and lenders will use that ratio to approve the loan. For example - mortgage is 1000, income is 1600 then your DSCR ratio is 1.6 - good to go. I think most go to 1.1 or 1.0 to approve the loan. The DSCR will likely be more expensive to originate (depends on the lender), will require more money down (20-25%), have a prepayment penalty, and a higher interest rate

Title insurance, to my knowledge is unrelated to who owns the loan - this is simply insurance that the title paperwork is correct 

I don't take any special measures - I have my personal and business split as best I can, I do regular inspections and follow all codes and regulations. We also have good leases in place that try to minimize our liability.