Taking a loan from an LLC partner

[Daniel Kent]

Hi all and Happy New Year!

Hopefully this isn’t too confusing....

My partner and I own a single family rental in an LLC. Let's call this property 1. He has 75% equity and I have 25% equity, as we both contributed capital according to the percentage split. We are looking to close on another property (property 2) with the same 75% - 25% split. I would like to leverage my 25% equity from property 1 and invest that into property 2.

- Would I be able to take a loan leveraging 25% in property 1 (with my partners consent), while he does not leverage his 75%?

- is it possible for my partner to also be the lender? So he contributes the capital for his 75% equity in property 2, and my capital comes from a loan from my partner (with a loan agreement, payment schedule, etc) and essentially a lien for my 25% of property 1?

What I am not sure about is can one partner take a loan against a property, or do both partners need to?

Can a partner in an LLC lend to another partner in the LLC to purchase a property the LLC will own, using another property owned by the same LLC as collateral?

I hope this isn’t too confusing. Look forward to hearing some input or clarifying if need be,

Thanks!

[Sean Morrison]

The LLC is important, because you don't own 25% of the property, you own 25% of the LLC. The LLC is a separate entity owning the property. The LLC could certainly try to get a loan for 25% of its property's value, but the LLC would need to sign off. Since it's a holding company, I am assuming you don't have an operating agreement, so the default would mean both partners need to agree to such a loan.

Your partner could make a personal loan to you, with your 25% stake as collateral. That is probably the simplest solution. The LLC could also make the loan if it had any cash.

You could theoretically use your 25% interest in the LLC as collateral for a loan without your partner, but it would be difficult to find somebody who would lend for that.