Financing with LLC

[Kingside]

Another possible downside to giving personal guarantees is that true guarantors are not entitled to anti-deficiency protection in California, even if it is a non-judicial forclosure if the LLC defaults.

[davelj]

These days the personal guarantee will be required no matter where you go. Every loan made by an FDIC-insured institution must have two sources of repayment: a primary source and a secondary source. The primary source is the cash flow from the property. The secondary source is the collateral itself – the property. In the case of an owner-occupied residential loan, the primary source is the borrower’s income and the secondary source is the collateral, which in recent years has turned out to be problematic, to say the least.

Two years ago you probably would have been able to find some banks who would make you the loan without the personal guarantee. They’d accept the cash flow as primary source and the collateral as secondary source. But…

Those days are over for the foreseeable future. Today, you’ll have to offer a personal guarantee because the bank doesn’t know where the bottom is in terms of the collateral’s value and this is your first try at this. If you were willing to put 40%-50% down, you might not have to offer the personal guarantee because there would be more cushion on the collateral value.

Work with a broker or a small local bank. Don’t bother going to a big bank. You really shouldn’t need a broker, frankly. This sounds pretty straightforward. In fact, you might even be able to get the loan through a credit union since it’s not very large. That’s where I’d start if I were you.

[davelj]

These days the personal guarantee will be required no matter where you go. Every loan made by an FDIC-insured institution must have two sources of repayment: a primary source and a secondary source. The primary source is the cash flow from the property. The secondary source is the collateral itself – the property. In the case of an owner-occupied residential loan, the primary source is the borrower’s income and the secondary source is the collateral, which in recent years has turned out to be problematic, to say the least.

Two years ago you probably would have been able to find some banks who would make you the loan without the personal guarantee. They’d accept the cash flow as primary source and the collateral as secondary source. But…

Those days are over for the foreseeable future. Today, you’ll have to offer a personal guarantee because the bank doesn’t know where the bottom is in terms of the collateral’s value and this is your first try at this. If you were willing to put 40%-50% down, you might not have to offer the personal guarantee because there would be more cushion on the collateral value.

Work with a broker or a small local bank. Don’t bother going to a big bank. You really shouldn’t need a broker, frankly. This sounds pretty straightforward. In fact, you might even be able to get the loan through a credit union since it’s not very large. That’s where I’d start if I were you.

[davelj]

These days the personal guarantee will be required no matter where you go. Every loan made by an FDIC-insured institution must have two sources of repayment: a primary source and a secondary source. The primary source is the cash flow from the property. The secondary source is the collateral itself – the property. In the case of an owner-occupied residential loan, the primary source is the borrower’s income and the secondary source is the collateral, which in recent years has turned out to be problematic, to say the least.

Two years ago you probably would have been able to find some banks who would make you the loan without the personal guarantee. They’d accept the cash flow as primary source and the collateral as secondary source. But…

Those days are over for the foreseeable future. Today, you’ll have to offer a personal guarantee because the bank doesn’t know where the bottom is in terms of the collateral’s value and this is your first try at this. If you were willing to put 40%-50% down, you might not have to offer the personal guarantee because there would be more cushion on the collateral value.

Work with a broker or a small local bank. Don’t bother going to a big bank. You really shouldn’t need a broker, frankly. This sounds pretty straightforward. In fact, you might even be able to get the loan through a credit union since it’s not very large. That’s where I’d start if I were you.

[davelj]

These days the personal guarantee will be required no matter where you go. Every loan made by an FDIC-insured institution must have two sources of repayment: a primary source and a secondary source. The primary source is the cash flow from the property. The secondary source is the collateral itself – the property. In the case of an owner-occupied residential loan, the primary source is the borrower’s income and the secondary source is the collateral, which in recent years has turned out to be problematic, to say the least.

Two years ago you probably would have been able to find some banks who would make you the loan without the personal guarantee. They’d accept the cash flow as primary source and the collateral as secondary source. But…

Those days are over for the foreseeable future. Today, you’ll have to offer a personal guarantee because the bank doesn’t know where the bottom is in terms of the collateral’s value and this is your first try at this. If you were willing to put 40%-50% down, you might not have to offer the personal guarantee because there would be more cushion on the collateral value.

Work with a broker or a small local bank. Don’t bother going to a big bank. You really shouldn’t need a broker, frankly. This sounds pretty straightforward. In fact, you might even be able to get the loan through a credit union since it’s not very large. That’s where I’d start if I were you.

[davelj]

These days the personal guarantee will be required no matter where you go. Every loan made by an FDIC-insured institution must have two sources of repayment: a primary source and a secondary source. The primary source is the cash flow from the property. The secondary source is the collateral itself – the property. In the case of an owner-occupied residential loan, the primary source is the borrower’s income and the secondary source is the collateral, which in recent years has turned out to be problematic, to say the least.

Two years ago you probably would have been able to find some banks who would make you the loan without the personal guarantee. They’d accept the cash flow as primary source and the collateral as secondary source. But…

Those days are over for the foreseeable future. Today, you’ll have to offer a personal guarantee because the bank doesn’t know where the bottom is in terms of the collateral’s value and this is your first try at this. If you were willing to put 40%-50% down, you might not have to offer the personal guarantee because there would be more cushion on the collateral value.

Work with a broker or a small local bank. Don’t bother going to a big bank. You really shouldn’t need a broker, frankly. This sounds pretty straightforward. In fact, you might even be able to get the loan through a credit union since it’s not very large. That’s where I’d start if I were you.

[Anonymous]

I’ve talked to a couple local banks and done some more research, and here’s what I’ve learned so far:

• The banks I talked to won’t let you take title as an LLC. They only work with individuals (if someone knows of an exception to this, let me know.)
• When there is a mortgage, there are potential issues with taking title as an individual(s) and then transferring title to LLC. May trigger the lender’s “due on sale” clause (any way around this?)

No, I haven’t talked to a lawyer yet and I probably will need to do so before I am confident with a solution. But I’d like to get my ducks in a row first since they charge by the hour.

Let me restate the basic problem, since my original post may have been confusing:

How can one purchase an investment property (with financing) while protecting their personal assets by holding a property in an LLC?

It seems that this would be a common situation, but perhaps I’m missing something…

Thanks!

[Anonymous]

I’ve talked to a couple local banks and done some more research, and here’s what I’ve learned so far:

• The banks I talked to won’t let you take title as an LLC. They only work with individuals (if someone knows of an exception to this, let me know.)
• When there is a mortgage, there are potential issues with taking title as an individual(s) and then transferring title to LLC. May trigger the lender’s “due on sale” clause (any way around this?)

No, I haven’t talked to a lawyer yet and I probably will need to do so before I am confident with a solution. But I’d like to get my ducks in a row first since they charge by the hour.

Let me restate the basic problem, since my original post may have been confusing:

How can one purchase an investment property (with financing) while protecting their personal assets by holding a property in an LLC?

It seems that this would be a common situation, but perhaps I’m missing something…

Thanks!

[Anonymous]

I’ve talked to a couple local banks and done some more research, and here’s what I’ve learned so far:

• The banks I talked to won’t let you take title as an LLC. They only work with individuals (if someone knows of an exception to this, let me know.)
• When there is a mortgage, there are potential issues with taking title as an individual(s) and then transferring title to LLC. May trigger the lender’s “due on sale” clause (any way around this?)

No, I haven’t talked to a lawyer yet and I probably will need to do so before I am confident with a solution. But I’d like to get my ducks in a row first since they charge by the hour.

Let me restate the basic problem, since my original post may have been confusing:

How can one purchase an investment property (with financing) while protecting their personal assets by holding a property in an LLC?

It seems that this would be a common situation, but perhaps I’m missing something…

Thanks!

[Anonymous]

I’ve talked to a couple local banks and done some more research, and here’s what I’ve learned so far:

• The banks I talked to won’t let you take title as an LLC. They only work with individuals (if someone knows of an exception to this, let me know.)
• When there is a mortgage, there are potential issues with taking title as an individual(s) and then transferring title to LLC. May trigger the lender’s “due on sale” clause (any way around this?)

No, I haven’t talked to a lawyer yet and I probably will need to do so before I am confident with a solution. But I’d like to get my ducks in a row first since they charge by the hour.

Let me restate the basic problem, since my original post may have been confusing:

How can one purchase an investment property (with financing) while protecting their personal assets by holding a property in an LLC?

It seems that this would be a common situation, but perhaps I’m missing something…

Thanks!

[Anonymous]

I’ve talked to a couple local banks and done some more research, and here’s what I’ve learned so far:

• The banks I talked to won’t let you take title as an LLC. They only work with individuals (if someone knows of an exception to this, let me know.)
• When there is a mortgage, there are potential issues with taking title as an individual(s) and then transferring title to LLC. May trigger the lender’s “due on sale” clause (any way around this?)

No, I haven’t talked to a lawyer yet and I probably will need to do so before I am confident with a solution. But I’d like to get my ducks in a row first since they charge by the hour.

Let me restate the basic problem, since my original post may have been confusing:

How can one purchase an investment property (with financing) while protecting their personal assets by holding a property in an LLC?

It seems that this would be a common situation, but perhaps I’m missing something…

Thanks!

[4plexowner]

I purchased as individual and then transferred property into LLC

There might be language in the mortgage that lets the bank foreclose over a title transfer but how likely is it?

LLCs are commonly used to hold real estate and as long as the mortgage is being paid the bank isn’t going to say anything

of course, if you are setting up the LLC with fraudulent intent, and that can be proved, the LLC would be invalid and easily penetrated – ie, not worth the paper it was printed on

[4plexowner]

I purchased as individual and then transferred property into LLC

There might be language in the mortgage that lets the bank foreclose over a title transfer but how likely is it?

LLCs are commonly used to hold real estate and as long as the mortgage is being paid the bank isn’t going to say anything

of course, if you are setting up the LLC with fraudulent intent, and that can be proved, the LLC would be invalid and easily penetrated – ie, not worth the paper it was printed on

[4plexowner]

I purchased as individual and then transferred property into LLC

There might be language in the mortgage that lets the bank foreclose over a title transfer but how likely is it?

LLCs are commonly used to hold real estate and as long as the mortgage is being paid the bank isn’t going to say anything

of course, if you are setting up the LLC with fraudulent intent, and that can be proved, the LLC would be invalid and easily penetrated – ie, not worth the paper it was printed on

[4plexowner]

I purchased as individual and then transferred property into LLC

There might be language in the mortgage that lets the bank foreclose over a title transfer but how likely is it?

LLCs are commonly used to hold real estate and as long as the mortgage is being paid the bank isn’t going to say anything

of course, if you are setting up the LLC with fraudulent intent, and that can be proved, the LLC would be invalid and easily penetrated – ie, not worth the paper it was printed on

[Author]

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