Too many loans? HELP

[Brie Schmidt]

I own 3 properties in my personal name - I want to 1031 one of them into another investment property.  

The issue is I have 18 commercial loans to my LLC and I am 100% owner of the LLC so they are on my schedule E. My lender says he can't do anything for me, but I thought them being in a LLC made them exempt from the limit of financed properties.

When you pull my credit only the 3 show up.  Thoughts @Albert Bui or @Chris Mason

[Albert Bui]

Originally posted by @Brie Schmidt:

I own 3 properties in my personal name - I want to 1031 one of them into another investment property.  

The issue is I have 18 commercial loans to my LLC and I am 100% owner of the LLC so they are on my schedule E. My lender says he can't do anything for me, but I thought them being in a LLC made them exempt from the limit of financed properties.

When you pull my credit only the 3 show up.  Thoughts @Albert Bui or @Chris Mason

From a residential lendin stand point properties only do not count if your name on the title and the mortgage note are in another entity and mortgage note does not show a personal guarantee.

There are different takes to this because the underwriters still see 18 properties on your schedule E and this a gray and this is where the art and science of being a lender, investor, come together.

The underwriters in 99% of cases don't get that LLC's can be taxed in multiple ways and your lender will have to explain that to them (sole prop, Corp, partnership, etc).

When an underwriter sees properties on a schedule E they assume you own it personally because they are used to seeing borrowers who own properties in their own names on that schedule so they assume the same.

One solution ive seen used and discussed with multiple accountants and attorneys is to file your LLC as a partnership (form 1065) and have one of your other entities own 1% of your llc while you own the other 99%.

What does this solve ? 

It takes all the 18 properties off your personal return on to your 1065 or partnership return so now it removes it from showing up and to the underwriter this shows as a separate company owning them.

Done correctly this allows your personal return schedule E to only show 3 properties that are in your personal name and the rest will appear on the 1065. This documents the separation of legal ownership more clearly for residential underwriters because the murky line between taxes and legal is muddy for them. 

Underwriters do not get tax and corporate law classes and often learn it while on the job and the same goes for anyone really.