Vacation home loans for LLC?

Question

Good evening everyone. I’ve bought a couple long term rentals, and now I’m looking to buy a short term rental. I’m interested in using a vacation home mortgage for the lower down payment. Am I able to use a vacation home mortgage if I’m purchasing the rental u see my LLC? Thank you in advance for the feedback. Respectfully, Vince

John Underwood · Answer

Exactly!Everyone seems to mistakenly think they need an LLC. Just like many mistakenly call STR'S an Air bnb.

Leslie Anne Morris · Answer

You can really only have the property in the name of an LLC if you structure the loan as a commercial/DSCR/asset based loan.

AJ Cerbo · Answer

Can you elaborate a little more on what the correct STR insurance / umbrella would be and how they would protect you compared to an LLC?

Michael Baum · Answer

Man! Everyone is on the ball tonight!There is no real need for the LLC if you have correct STR insurance and an umbrella. Keep up on the maintenance of the property and you should be good to go.

Kyle Mccaw · Answer

@Vincent Casiano I believe the 2nd home mortgage you are asking about would need to be in your personal name. It is a 2nd home mortgage. If you are in Texas you should talk to @Andrew Postell for the details.

Michael Baum · Answer

Hey @AJ Cerbo, so an LLC is supposed to be a shield from lawsuits. It can protect your assets. They are not perfect. They can be pierced. Nothing will protect you from negligence. If you don't take care of your STR, you could be in for a world of hurt. You need specific STR insurance that covers your STR activities. Regular home owners and land lord policies do not. The umbrella provides more insurance if your STR policy can't cover the whole loss.For example, my STR policy even covers people when they are away from the house. If they rent a boat and get injured skiing, I have coverage if they decide to sue us. It is true you can sue anyone, anytime for any reason, but most of us don't think that way.We aren't someone in CA who feels they got screwed because Texas Pete's hot sauce is made in North Carolina.

Albert Bui · Answer

Like Leslie mentioned to fund this property in a LLC you'd need to be in a non conventional or non agency loan because the agencies (fannie/freddie/ginnae) require you to close in your personal name or your living trust (inter-vivos trust or a trust created while you're alive).The downside with DSCR loans is that their rates are 1.50-2.00% higher than conventional paper/financing and their points typically are around 1-2 points higher apples to apples (and sure there were minute periods of time in history where DSCR was probably cheaper than conventional but it was few and far between).The other option to fund in a LLC or entity is with portfolio loans from local banks but that will require you to have a long term lease arrange or have a couple years of tax returns filed for the STR property (short term rental property) to even be considered because they dont lend on properties that arent battled tested or currently producing income.@Carlos Valencia@Matthew Kwan

Luke Carl · Answer

No. Think about it. If it’s your vacation home no one would be in it but you. Why would you sue yourself?

Michael Baum · Answer

I haven't seen every LLC transfer with a conventional mortgage, but the ones I have seen, all of them had the loans called due. You are getting a preferential interest rate and downpayment with a second home loan vs a commercial loan. If you don't state up front you are going to use it as a commercial venture, that is mortgage fraud. There would be no reason to put the property in an LLC if it is for personal use. I seriously doubt that there would be any repercussions, but so far, everyone I have met has had to do a new loan. Some with more down and all with a higher interest rate.The lenders gladly redid the mortgage for some owners but not all. 2 people I know had to go to another lender and start over. An LLC might be ubiquitous but it doesn't mean you commit mortgage fraud.

Craig Glendenning · Answer

Hi All, Disclaimer: I am not an attorney or CPA. There are two concerns raised here: One is Lending to an LLC, the other is Asset protection.Lending to an LLC:The way this is typically done is to purchase the STR in your name through conventional financing, then have a title company move the property into your LLC. Your loan docs may state that the lender *can* call the loan due in full if ownership changes, but considering the ubiquity of this asset protection approach, I don't think there is much precedent for a lender actually calling the loan due...<re-insert disclaimer here>Asset Protection:Once the property is in the LLC, you have to make sure that funds flow correctly in and out of the LLC's bank account to ensure the veil of the LLC is not pierced. If you do not respect the LLC for what it is, a court may agree with you. ; - )Craig