How to develop credit for a new LLC to start getting better financing

Question

Wondering if this strategy would help.   I currently have cash to buy some properties but am try to figure out the best way to start to develop credit for a new LLC.  First would a lender fund a new LLC if they put 70 to 80% down?

My thought is to purchase a few homes, putting down as much as I have to get get any type of loan for a news LLC, then pay down the small balance over time to build a credit history so I can eventually get a loan with 25% down or HLOC the paid homes to get in to additional properties?

Any thought or idea's if this is possible would be appreciated.

Thanks

Rod F. · Answer

John,

My experience with the LLC loans is I have to sign a personal guarantee on every loan with LLC.   Having a 30% equity of the rehabbed Actual Market value Has been plenty for me. I have been dealing with 5 different banks, some more receptive than others.

I haven't actually used any cash in the down payment loan side of the equation.  We buy foreclosures, rehab , and hold for rentals.  My equity's after purchase and rehab (rehab was financed also). is between a 30 and 40% equity.   Currently we have about 40 properties in 3 different LLC"S. I'm now opening different credit cards in each of those llc's building a credit report for each.  I hope to drop personal guarantees in the future.

My suggestion is talk to the lenders , more than one. and ask them what is their requirement's. you might be able to buy multiples with your money.  And you will find a significant difference in interest rates.

I have not went back and borrowed any of our equity's.(Heloc)  It does sound like a way to get more houses bought. So far I haven't needed the extra help to get the loans.

I did get a Heloc on my personal house for a while. to purchase a new home for the family.

both houses are now 30 yr. mortgages. while interest was low.  old house is a rental.

mostly 15 -20 yr. amortization loans, were 9 years into it now.

Hope that helps you in some way.

"There's always another angle you just have to look deep for it."

It's the art of the deal!!

.

John Nicholas · Answer

Great info,  Thank you for the explaining that, i was unsure of the process..

Have a good one

Manolo D. · Answer

It doesn't work like fico, paydex is based on how many days you pay, if you pay on time, your score is 80, perfect score of 100 is if you pay it 30 days in advance. It is not an arithmetical scoring like experian/transunion/fico. If you have 3 trade references that reports to dnb, then pretty much your score is Unknown, or if it is like 3 months old. They are not that friendly, and only a few companies are reporting them. There are some forums that give you a list of companies that report to dnb, but they are just a handful.

John Nicholas · Answer

Thanks Manolo,

I am not sure i understand the risk?   I could pay cash but figured put enough down to qualify with out a PG.  if something went wrong I could just pay the balance off.  just thought that might help build it with out the PG.

Manolo D. · Answer

@John Nicholas I would not risk 70%-80% down just to make them happy. I would get a broker that would do the hard work for me. If I get my PAYDEX score up, ill start shopping, then they start coming after me.

Steve Vaughan · Answer

@John Nicholasyou're welcome.  No, I haven't tried to heloc these multi-fam's in my LLC to leverage new purchases.  Personally, I am tired of banks and lenders so I am paying off what I have. I buy or assign here and there, but no banks are involved anymore. But that's just me.  When I was actively acquiring property I would put down 10%-20% like most people do.  Your reference to putting down 70-80% is what prompted my response.  Easier and cheaper to keep your acquisition capital than to go back and borrow it again, ya know?  Hope you find what you seek!

John Nicholas · Answer

Thanks for the encouragement Steve,

Sounds like you have a great portfolio of assets,  I am really surprised  that the bank still requires a PG.  Have you been able to HELOC any of the equity from your assets to fund new assets?

Have a good one

Steve Vaughan · Answer

I wouldn't kill most or all of my purchasing power trying to get my LLC to be a stand-alone borrower some day down the line.  I've had an LLC for 10 years that owns over $2MM in assets and has performed "better than agreed' the whole time.  I still have to sign personally. (although I haven't in a long time- I'm about tired of all of them and only go in to make deposits these days)  I'm not suggesting you over-leverage yourself, but 70% down?  Then, with hat in hand, see if a bank won't make you sign personally? Pretty please, Mr Banker....  Forget them and do what's right for you and your goals.  Go get 'em @John Nicholas! Congrats on having such an awesome capital position by the way!

How to develop credit for a new LLC to start getting better financing

Most Popular Reply