Will FHA be the way to go?

[Luis Henriquez]

Hello guys, just started to listen to the podcast and it is great to know there is a community to learn so much about this business.

We're an association of 3 family members looking for financial independence. We decided that real estate investments is the way to go and that's why we created an LLC and try to conduct business as a company. About 3 years ago I was approved for a FHA and we bought our first property (which we hold right now under my name) and has been generating cash flow ever since. Towards the end of last year we were able to sublease a property for short-term rental which has been working out great.

Our next step is to have another of us approved for a FHA to acquire a multi-family property and then our third member to do the same sometime next year while we work on improving the credit scores.

The questions are: is this purchasing as individuals with FHA loans be the right way to do this? Is it better to try to buy as a company? And if so, what advice would you give us? What would be the best process to transfer the houses to the company later or is that not a good idea?

Thank you in advance!

Luis H.

[Weston Couch]

@Luis Henriquez Hey Luis, I hear these type of questions a lot. A transfer to an LLC can trigger the clause and should therefore be avoided, even though banks are hesitant to ever foreclose as long as the note is being paid. Even with the note being paid, the banks often still send threatening letters. This issue can be avoided completely by transferring the property into a land trust.

While a transfer to an LLC will cause alarms at the bank and prompt them to send you a letter, a transfer to a trust will not. A transfer to a trust is exempt from due on sale violations since banks will view transfers to a trust as an estate planning tool. You should not even receive a letter from the bank.

This article can explain the general process of taking a property into your own name and transferring it into the Land Trust before assigning it to the LLC. The added benefit of this process is that you can also have your attorney sign the public records as "Nominee Trustee" before assigning yourself as the "Trustee" once the Trust has been established. It means your name does not appear on public record for that property, your attorney and their address is the only thing that appears. All the while, you always have control and nobody else, not even your attorney, can manage or sell your property except for you.

Hope that helps, and feel free to DM if you'd like to know more.