All Forum Posts by: Felix Stone

Thanks Darius. 

Thanks @Greg Scott. I'll talk with the lender and see if we can get creative. 

Thanks. If we go traditional LLC route with him as managing member with 50% equity. When lenders see the operating agreement, they will see his name and the equity for working as the manager. At that time, they will want to see his financials and will see no W2 and most likely will deny the lending.

Any idea how do I structure this LLC creatively if at all so he has equity but I also get the loan from the bank?

Hi All - I would like to get into a partnership with a friend(non W2) who has been investing in RE for few years and would like to know the best way to structure the LLC such that mortgage lenders will be OK with him owning ~ 50% equity?

Asked differently, How do I get financing in an LLC with a partner who does not have a W2 and will do all the work?

More color below:

- He will do all the work and bring in the knowledge. Capital contribution TBD.

- He is going full time in RE so wont have a W2. Imagine that will raise a flag with the lenders because he will have more than 20% equity, likely around 50%.

- I am ok giving the personal guarantee on the loan just by myself. I have a full time job and solid credit. 

- He does not mind being on the loan. But we just do not know if the lenders will be OK with that.

- He will have NOT enough income from his investments when he goes full time in RE for the lenders to be fine. He will have decent liquidity in the banks.

Thanks so much in advance.

Hi - Me and my partner(Tom) have been investing together for some time. We started a new ABC LLC with a common friend(John) and got a deal under contract due on financing(75% LTV). Come to find out lenders had a problem with John because he is putting in 60%($100,000) of the initial investment, no landlord experience and he is not a US citizen even though he lives here on E2 visa and has been investing through his US based XYZ LLC.

So Tom and I re did the ABC LLC with just us as the members of the LLC and lenders were fine with that. We are closing in a few weeks.

Question - How do we contract with John now for the initial investment? 

1 Can't bring John on as a member of the ABC LLC since lenders will have a problem with that when they find out. Can our ABC LLC do a limited partnership with XYZ LLC without raising flags with the lender?

2 We can do an interest only promissory note like (John get x% on the capital) but John had agreed to 54% equity in the original deal and all 3 of us would like to do a promissory note with profit and loss sharing, where John gets amount equivalent of 54% of total cash flow calculated end of each year + 54% of the mortgage principal pay down at the end of the term(lets say 3 years)

eg - if the cash flow is $10,000 every year(for simplicity), John gets $5,400 every year. And at the end of the term, lets say total principal paid towards the mortgage is $20,000, then John gets $10,800 once. 

So John's total return is $5,400 X 3  +  $10,800 = $27,000  (roughly >9% because cash flow will ideally increase every year)

Is there a way to structure the deal like that through a promissory note?

3 Is there any other option?

@Marc Winter Sorry, looks like I attached a screenshot of a different contract, which was not fully filled out so no settlement date. 

Thanks @Patricia Steiner. Attaching the mortgage section here and I think I do have the right language in there to use financial contingency as leverage.. This indeed helps. Part where I am unclear now is that if the mortgage contingency gives me room to negotiate with the seller after appraisal comes low, do I ever need an appraisal contingency?

Thanks, @Mike McCarthy. That makes sense. Here are the terms in Section 8 of the contract as you might be aware already.Do you mean if the appraisal comes in low, the bank might still go up to $300k loan amount if I am paying a downpayment of $100k already per the LTV term below?

(A) This sale is contingent upon Buyer obtaining mortgage financing according to the following terms:
84 First Mortgage on the Property
85 Loan Amount $300,000
86 Minimum Term years 25 years
87 Type of mortgage Conventional
88 Loan-To-Value (LTV) ratio:
89 For non-FHA/VA loans LTV ratio not to exceed 75%

Thanks so much for you insight.

Hi All - A friend told me about this site and there is a wealth of info but couldn't find what I was looking for. 

Context

I put in an offer on 4 off market properties in Pennsylvania. Offer is for the total price and all the properties are listed on one contract so eg - I put in an offer of 400K and listed all the 4 properties in the AOS. Offer got accepted and I am getting individual loans from the bank on each property. Offer is the standard PA contract and has a mortgage contingency with $300k loan price. However it does not have an appraisal contingency. 

The bank is asking for individual prices of the property for these individual loans. 

I am pretty sure the appraisal for all 4 combined will come around $360k( the numbers worked for me still so I went for it, also I think I rushed :()

Question 1

What should I give the bank as individual property prices knowing they will get an appraisal for each property? anything to look out for here?

Question 2

If(or when) the appraisal comes in lower than $400k combined(lets say $360k) and so assuming the bank will now not loan $300k at 75% LTV per the AOS, would I be able to ask the seller to lower the asking price and if they don't (and I don't want to pay up the $40k difference), could I back out of the deal without losing my 12k total deposit?

Hoping for quick responses since I have not send the EMD yet. Thank you so much in advance for taking time on a Sunday to help out.