Hello, I am the managing partner of a new LLC, and was wondering if it is possible to finance a 4 unit building or many 4 unit buildings as an LLC. I have been running into some snags with people telling me that I am only able to purchase the property as individuals and not as a company. That does not help the company grow and obtain its own credit rating, eliminating the need for our credit scores. There are 4 members of the llc, with 651, 735, 767, 800 middle credit scores respectively. We make $230,000 collectively each year and have really low debt to income ratios. We own houses. We are able to purchase property as individuals, but wonder the possiblility of doing it in LLC and what are the terms if we do this or many of them in a row (30-40 units in 2 years). Please help.
french,
Until the LLC has been around for awhile you will have trouble closing a loan in the name of the business without have to still sign a personal guarantee.
To transfer a deed to an LLC, the deed will need to prepared in the LLC’s name and filed and recorded in the appropriate office(s) located in the jurisdiction in which the property is located (usually the county’s recorder of deeds office). The deed must be signed by the person or entities transferring the property, and will require the proper notarizations.
There are different types of deeds that may be used to transfer the title to the property. For example, some deeds may contain warranties purporting to protect the grantee-purchaser from possible defects in the title of the property. The type of deed used to transfer the property to an LLC generally will depend on the particular property at issue and the individuals or entities involved.
Also, a property owner’s ability to transfer the deed to an LLC may depend on whether the property is subject to a mortgage. Unless the underlying loan is paid in full prior to or at the time of the transfer, the deed will only transfer subject to the mortgage. Moreover, the loan and/or mortgage documents may prohibit a transfer of the property unless the loan is paid in full or the lender consents. Whether or not the lender holding the mortgage permits the deed and the mortgage to transfer to the LLC, will depend on the circumstances. For example, the lender may allow the LLC to assume the loan and mortgage, either with or without changes to their terms. Alternatively, the lender may require that the LLC obtain a new loan in the name of the LLC, and that the existing personal loan be repaid with the proceeds of that new loan. In either case, because the loan is being made to an entity and not to a private individual, the lender may request personal guarantees from the members of the LLC or additional collateral. The exact terms, conditions and loan options will vary depending on the lender and other circumstances.
Contact your attorney, im sure he/she could find a way to do it legally.
Transferring title, although common, will not help build the LLC’s credit.
You may not be able to do this right now (buy in the name of the LLC). There are a few residential lenders out there who allow you to close in the name of an LLC- however, the LLC must be established. Commercial lenders will also allow this, but this doesn’t sound like a commercial deal unless you are buying an entire community of 4-plexes.
I would suggest starting to build the LLC’s credit right away by getting a credit card or other credit line. Be sure to register your LLC with Dun and Bradstreet.
That is what i was afraid of…I guess that I am starting all over again in the framing of my company. Thanks as always for your thorough knowledge of the industry. I am almost ready to buy.