Conventional Mortgage With LLC????

Question

We started our LLC partnership back in 2-20 and have had trouble obtaining a conventional loan for our flips with an LLC. Have any investors here ever obtained a conventional with an LLC. Guidance and suggestions will be greatly appreciated.

David M. · Answer

@Clint McGraw Interesting...  then its not really a flip.

@Michael Kissi We've got tons of discussion threads on this in BP.  Personally, I find them to be inconclusive since everything is probably State specific due to business law or something.  Also, no attorney is going to provide legal advice and jurisprudence info on a public website, understandably.    There is as littany of "work" to be done with what you are suggesting which I personally still don't know if is "clean enough."  My pet peeve is there is zero information if what people do or suggest to do actually stands up in court.  Lets face it, its your company and you can do anything you want.  However, when you want the asset protection, the proof comes when you are sued.  I'm all for NOT getting sued --- don't get me wrong.

In short, the whole things comes to maintaining your corporate veil.  If everything doesn't legally fall under the LLC, then you don't have its supposed protection.  Its not just the leases which you'd have to novate since its no different than if somebody bought the property and kept the existing leases.  Now you have a mortgage given by a person for a property whose Title is held by an entity.  You are bouncing Title back and forth between the LLC and yourself.  I'm not a lawyer so I don't understand how you can successfully defend that the LLC isn't an "alter-ego" of yourself to sustain the corporate veil of the LLC.  That's just my very short list of peeves.  Certainly, others say they can establish ways around it -- okay...

Clint McGraw · Answer

@Whitney Hutten You are greatly appreciated. 😃

Whitney Hutten · Answer

At the end of the day, LLC's are only as good as the maintenance around them (corporate veil). Just because the asset is in an LLC doesn't mean it or you are protected.  Even then, investors will have a single asset LLC held by a holding company, held by some sort of trust... That slows down the piercing of the corporate veil... and could dissuade some people from trying. You still have be a great fair and responsive landlord, have strong liability insurance, perhaps even a commercial liability policy, keep airtight bookkeeping and accounting to really limit your risk. Some even use lending to limit their equity risk.  The use of the LLC is just one tool here.

David M. · Answer

@Clint McGraw

It doesn't matter if you are purchasing or refinancing.  Conforming loans such as a conventional, FHA, etc are for residential customers.  Since the LLC holds Title, its not a residential customer but a commercial customer.  That's why LLC's are "stuck" with commercial loans, HML, or any other non-conforming loan.  This is one of the main disadvantages / costs to having a LLC.  LLC's have their place, but you need to understand the pro's and con's.

Michael Kissi · Answer

Hoping to see @Whitney Hutten and other's response to your follow-up. Would the best option be to always purchase the property in my name, rehab and then refinance also in my name and then after the refinance is complete, transfer to the LLC? How does this affect any leases that may have been entered into before the transfer into the LLC?

Clint McGraw · Answer

Thank you again for your reply. This flip will be a rental property.  We are wanting finance the property to pull our initial investment out.

Harjeet Bhatti · Answer

@Clint McGraw Conventional loan can't be close on LLC name although you can transfer title with lender permission after closing on LLC name.

Reggie Rearden · Answer

This may or may not apply to someone on this thread, but I'll give you my experience. I'm in the middle of refinancing one of my SFH's to one of my LLC's. I'm doing this for many reasons and its based on MY particular situation. I have a 30yr conventional loan on this property which is in my name. It was my primary residence but is now a rental. I decided that its worth the higher interest rates and shorter terms to be refinanced under an LLC based on MY situation.

Does it cash flow as much? NO-but it still cash flows enough for me.

Am I separated from this property in the event of legal issues? Yes. (my primary concern)

In my opinion, set up your properties properly in the beginning. As you grow your REI's, you will not have to go back and restructure any of your properties.

Whitney Hutten · Answer

@Clint McGraw Yes you can refinance it conventionally, but it will be to your personal name (not the LLC).  You will have to qualify for the loan.

One option is you could then transfer the title back to an LLC after closing HOWEVER know this could trigger the due on sale clause. If you ask your lender if you can transfer the title, they most likely will say no.  I'm not suggesting this is the answer for you... it is however a fairly common practice amongst investors.

My question it... if you are flipping the property, why even go to the trouble of putting a conventional mortgage on it?  It seems like a cost that you don't need to incur before sale....

Clint McGraw · Answer

@Whitney Hutten thank you for your educated and informal response. What about refinancing the LLC owned property with a conventional loan? Can this be achieved? This is actually what I’m looking for. We flip our properties with our own cash.

Conventional Mortgage With LLC????

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