Financing Options

I’m starting a Real Estate Investing LLC with 3 partners who will put in capital. I would like to leverage the capital to acquire a number of properties. What options do I have for financing if the properties will be purchased under the name of the LLC. I wasn’t quite sure how it worked and whether we would be able to get financing based on our individual qualifications, credit score, etc. Or do the banks look strictly at the LLC since the title is going under that name. Any insight would be appreciated!

Your new LLC will not get a loan based on it’s history. The banks will look at you and your partners. You can find banks who will lend to an LLC, but expect them to require each of you to sign a form “personally guaranteeing” the loan. You’ll be looking for commercial loans. Expect shorter amortization terms as well as a percent or two higher interest than what you’d find for conventional owner occupied 30 yr rates. My experience has been that most banks who will even loan to LLCs will want between 15-30% down payment.
In addition, the bank will want copies of your articles of organization, operating agreement, and you’ll most likely have to all provide personal financial statements as well as provide financials to the bank each year they hold loans for you.
If you find that some banks don’t want to help you, keep looking. Our best luck came with looking at smaller local banks.


Hard money or private money!


Thanks for the info. Justin, do you think it will be easier to pay cash and refi out?

Justin – Regarding the personal guarantees, if the bank ends up taking a large loan loss on the loans to the LLC, would you say that the bank can come after the personal assets of any and all LLC members to recoup their loss? For instance, if only one of the members has material personal assets, can they go after that member for the whole loss?


superF: I think your answer is to find a bank willing to work with you and see what you can negotiate. The majority of our deals ended up being very little to no money down. As long as the bank felt like there was sufficient equity in the deal, we didn’t have to put in any of our own money (even for rehab in a few cases). So if you could find a deal like that, I’d just finance what you need and be done with it. It’s also better to know you have a bank willing to lend to you before you all pile your cash in and find out you can’t refi.

d1beard: I don’t have the PG paperwork in front of me, but both my wife and I had to sign separate ones (we are the only two member/managers of the LLC). Therefore I have to believe that we are each separately guaranteeing the loans and liable if something goes wrong. In your scenario, I think the bank would hold you all jointly and severally liable. Just like if you rented to a married couple…you wouldn’t let the wife stay there for free if the husband left her. She’s still on the lease too and liable for the rent.
The PG provides a direct line for the bank to use whatever means to collect the money from you personally, but that’s the risk you really have to take in my scenario. We can get the lending we need, but we have to back it up personally.

a personal guarantee is exactly that…if your venture/loan proves to be a net loss the bank will go after your personal assets to recover the difference…they have to the power to garnish wages as well…you sign a personal guarantee you are on the hook for the loan…period…

These personal guarantees are a huge negative with a multi-member LLC. It’s not a matter of each of three individuals being on the hook for one-third of any loss or deficiency. YOU might have to pay 100% if your partners don’t have adequate personal assets to cover their portions. They might look like they have some personal net worth when you enter the partnership, but who knows what happens to their finances down the road, and you’re left holding the bag for the LLC’s losses. Not worth it.

And that my friends is why my wife is my business partner.