I want to purchase a 4-plex with an LLC I’ll create. I talked to a lender and they said they have no problem with me purchasing it through an LLC I’ll create as long as I use my personal guarantee for the 1st lein (which will probably be 80%). Here is my question … For the remaining amount, I was going to loan the LLC the money with a secured 2nd. First, is this possible, and, if so, is it even worth doing? Or, should I just put down the 20% myself?
Ask the lender that you are using for the first what their max CLTV is? They may have it capped at 90-95% which means the most that you would be allowed to borrow and still qualify for their 80% lien is 95%. Why do you want to do the LLC thing if you still have to PG? Unless the property is over 1M you will still have personal recourse.
My other question is if you put down the 20% would you have to change your screen name form nomoneydown to 20%down? :biggrin
Thanks for the info, Christopher. The reason for using an LLC is primarily for asset protection. Yes, quite right about my screen name, although, much of the 20% I was planning to use wasn’t technically my money. :biggrin
I think you’re trying to complicate this too much. You’re still going to be on the hook for the loan personally either way, so why go thru the hassle (and the costs) of getting a loan in the LLC? Most likely, thru the LLC the lender is going to require it to a) be a commerical loan (stricter terms, shorter timespan, higher interest, no 100%) while doing it thru personal opens it up to a ‘standard’ residential loan (NOO, of course). You can still put the property into an LLC at closing (or later date).
Actually, I’m not trying to get a (1st position lein) loan through the LLC at all. It will be a PG loan, but the owner of the property will be the LLC. Sorry if I may have written my post to sound like I was trying to get (1st position lein) financed through the LLC. What I was curious about would be me loaning the LLC the money for the 2nd note.
A loan made to the LLC even with a PG is still a loan made to the LLC. IF you have to have a PG, then way bother with a more complicated loan?
You mentioned that you could only get 80% this way. By borrowing personally, instead of thru the business, then you should be able to find much more favorable financing terms as a 4-plex is still considered residential. Depending on credit, etc, there is no reason that you shouldn’t be able to find 100% financing, thus eliminating the need to ‘finance’ a 2nd note.
And yes, you can loan the LLC any amount of money for anything that you want. Dot your I’s and cross your T’s though. You want to make everything legal and valid, and you want to make sure that you actually pay you back.
Thanks Raj. I may very well qualify for a 100% NOO loan (I know my credit is outstanding [760+], but my DTI is a little high right now [45-50%]). If I can or if I go the route of just putting everything in my name (deed included), wouldn’t that expose me more for a lawsuit? My main objective would be to title the property into an LLC or LP to protect my personal assets. Any recommendations on how to proceed?
I am probably going to get pounded for saying this, but would a trust not allow you the same protection as well as a level of anonymity as well?
You can quit claim deed it to the LLC at any time after the sale if you want. That way you can get personal financing and LLC protection.
If you think that the lender would possibly have a problem with that (doubtful), then you could very well do a land trust, then assign beneficial to the LLC. Number of ways to get it done.
If your DTI is too high for a full doc loan, then go with a low or no doc. The interest will be a little higher, but IMO, still better than plucking down 20%.
Of course, you could buy, using your 20%, deed to LLC, then do a refinance to pull out the 20%, and the loan (and prop) is in the LLC name.
The lender would be a small local bank, so I’m thinking they wouldn’t have an issue with it, but you never know. Also, I believe any transfer of title incurs a transfer fee - not sure how much it would be, tho.
You also might want to ask your lender about title seasoning. Some lenders have guidelines that prevent them from offering financing on properties where the title has been changed more than once in a 3-6 month period.