How to finance, through LLC or personally??

Question

I was hoping to get some feedback from the great people here at BP. I'm in the South Jersey area and looking to add to my portfolio. I currently own1 rental property that was my primary residence before it became a rental. That house is financed through my personal credit. Now that I am ready to expand my portfolio I want to open an LLC, but I'm not sure how financing through an LLC works or if it even matters. Once the LLC is open should I finance my buy and holds through the company or continue to personally finance? If I personally finance how do I get the LLC involved with ownership? Am I able to finance through an LLC that has no credit history? Any advice is appreciated.

Nick L. · Answer

Michael L.Is this type of non-recourse SFR funding suitable for tax-advantaged vehicles such as SD-IRAs? Traditionally the problem with those is that you are not allowed to provide personal recourse.

Michael L. · Answer

Often portfolio lenders require you to have an LLC. One advantage of the new wave of portfolio lending that is really taking off right now is the loans are non-recourse. They are based on the cash flow/ debt service.

Michael Hayworth · Answer

If you're going solo, most banks are going to want a personal guarantee on your loans. I'm actually meeting with one of my portfolio lenders this morning to raise my guidance line to $1.25M with that bank, and they still require a personal guarantee. I've not found any so far that don't want that.

If you go in an ownership group with well-established partners and a well-funded cash position, you may be able to find a lender that'll lend to an investment group without personal guarantee. That's actually my next step, as I'm going to help a couple guys with money but no experience get started in this.

So an LLC doesn't generally protect your personal credit. What it DOES do is give you some legal protection if you get sued somehow. It's difficult, though not impossible, for a renter or someone else who sues your LLC to "pierce the veil" and get through to your personal assets.