To keep it short, I decided to leave my job and formed an LLC with another individual who is a licensed home inspector, an insured GC, and has over 10 years of residential construction experience. Everything in terms of the LLC is completed and we are currently looking at properties for rehab as well as financing. We just formed and obviously have no financial history as a company.
I’ve spoken with numerous local banks as well as lenders like Indymac. Getting $10k - $20k for a downpayment won’t be an issue, but why do so when working with OPP is always recommended. However, here are some of the issues I’m encountering:
only lend to individuals, not LLC
issues with me having no income after June (severance expires then)
I don’t have a substantial amount in savings because I am in grad school
only willing to lend 65% to 70% ARV
require a personal guarantee (which defeats the purpose of the LLC)
Am I being naive in thinking that we can find a lender willing to lend to us as an LLC, 90% ARV (which will cover the purchase, rehab, closing, and all other costs for the projects we’re looking at), with little or no documentation? If so, please let me know and I’ll adjust my expectations. If not though, I’d appreciate a nudge in the right direction.
almost nobody is going to lend to a newly formed LLC with no credit history and little or no asstes or income.
personally guaranteeing the loan does not defeat the purpose of the LLC. It still provides liability protection and a framework for your partnership. You can change the title after you close so the LLC holds the property. Most banks won’t care.
Based upon your requirements, you sound slike you might be head towards HMLs. You might try some small local banks and see if they will do a portfolio loan to you. However, not having W-2 income is going to make it more difficult.
I am currently negotiating the price on a house that we should be able to purchase for about $180k. We priced out materials/repair pretty conservatively and should max out at about $20k for rehab over less than three months work. We believe the house will be appraised for about $250k. We can come up with $10k - $15K in cash, however, the items mentioned in my original post make it more difficult to find financing.
Does anyone have any suggestions on where we can get financing (Northwest suburbs of Illinois).
Most hard money lenders will loan about 65% of the After Repaired Value, including purchase and rehab. Based on your numbers, you are close.
Loans to a LLC are not difficult as long as you provide a personal guaranty.
We have 4 new LLC’s and know that it takes 24 months to get the best loan rates for our LLC’s…also knowing that the lender Will look at the individual LLC managers credit score in determining the rate and LTV. We do rehabs as well and I am a mortgage broker…thus, I know how lenders work and st the get go based my business off of Private Lenders.
The loans my LLC’s will get later will just be used for vehicles and marketing expenses.
If you go after PL’s to raise funds…would totally follow your states SEC laws and then it is quite easy. Give the lender a 1st lien only! Title/Haz insurance/Promissory Note of the terms you will pay them and when…record all and do what you say and you will have more $$ than you will find deals for:)
i noticed you said you spoke to indymac. are you doing commercial because i dont know why you would talk to them for residential. why didnt your mortgage consultant talk to you about going stated? and no you can not finance under your LLC if you have not established credit for it. so i guess your obstacle would then be how do you establish credit for your LLC-- see below.
I spoke to indymac because I’ve seen their name on this board several times and wanted to exlore all options available, due diligence and such. However, they don’t lend to LLCs, only individuals. So there is always the option to get the loan in our names and transfer it to the LLC.
And you’re correct, the biggest issue we’re encountering is the lack of credit for our LLC which is why a personal guarantee has been required of us for all inquired loans thus far.
start with just what you said, buying in your name and transferring to the LLC. BTW establish an LLC for each property you do
ex.
you are buy 123 mockingbird ln
est. and LLC as 132 mockingbird ln, LLC. this is to cya.
open a bank account/money mkt whatever in the name of the LLC. request a credit card for the LLC through the bank or AMEX. when you open your MM acct ask your financial advisor how to open a dunn and bradstreet acct to establish credit for your LLC. this will be a great start.