Hi, I just form a series LLC to hold my rental properties, and can my LLC pay me a monthly salary? so that I can increase my salary income and be able to purchase a restaurant business, my debt-to-income ration is high and have 1 foreclosure on 1 of my rental property, thus, I cannot do any financing to purchase the restaurant business.
Any suggestion, advise would be appricated.
Thanks
I really doubt that getting a salary from a company that owns properties you already own will help your debt to income ratio,you should already be getting credit for your rental income (or 75% of it for properties held under 2 years)
yes, the LLC can pay you a salary.
this would also subject your salary to FICA and Medicare, which as “LLC Income” you are probably not paying. So figure an extra 13.3% out of pocket for taxes (5.65 from the individual and 7.65 for the company’s contribution).
And in the end it would do nothing to change your total income, because the LLC would benefit from the salary and payroll tax deductions, reducing LLC income by the exact same amount that your W-2 gross salary would increase.
And you’d still be out the cash for the payroll taxes.
Yes, the LLC is a separate entity and can pay you a salary. As to how that will effect your debt ratio, I’m not sure.
As a general rule, commercial loans are based upon the income the business generates and not so much on the personal credit of the borrower.
To get a commercial loan, be ready to prove that you have a lot of money on hand for working capital/operating costs/reserves and more for the downpayment. Also expect resistance from lenders if you do not have a track record of success in the restaurant business.
I currently work as a commercial credit underwriter at a large regional Bank and I have to echo what the previous posted stated. From an underwriting perspective if we have a business that is acquiring another business, we look at the original business, and if that entity is an adequate repayment source for the requested debt on its own. We do not take into account the cash flow of the acquired business, that could evaporate after acquisition for all we know.
We do look at personal income and credit as well. Your rental property NOI would be added back to your personal cash flow, less any debt service you have on that property. I again, concur with the previous posters that shifting that income from schedule E NOI/RE income to wages is of no help to you. Business acquisition requires standard downpayment of 20% for coventional lending, unless you are seeking an SBA guaranteed loan.
Just got together with a sharp estate planner the other nite… I have my six units in and out of LLC’S. He highly recommended each property be in it’s own LLC. If you have any tenant sue you for something that happens on a property and they go after it then any other property in the LLC is fair game.