Many real estate investors hold rental properties in a limited liability company (LLC) rather than in their own name. One of the first questions new investors ask is whether they can still get financing that way. For investor loans such as DSCR, fix and flip and bridge loans, the answer is usually yes.
Why investors use LLCs
- Separation: an LLC can help keep investment property separate from personal assets.
- Organization: a clean entity for the property’s income, expenses and records.
- Flexibility: entities can make it easier to bring in partners or hold multiple properties.
The legal and tax effects depend on your state and situation. This is a question for an attorney and a tax professional, not a lender.
How lenders treat LLC borrowers
Conventional mortgages are generally written to individuals who will live in the home. Investor loans are different: they are business-purpose loans, and closing in an entity is common. Expect these points:
- Personal guarantee: the lender typically asks the owners to personally guarantee the loan, so the guarantor’s credit and experience still matter.
- Entity documents: articles of organization, an operating agreement, an EIN letter and a certificate of good standing are commonly requested.
- Ownership details: the lender needs to know who owns the LLC and who has signing authority.
Sequence matters
Set up the entity before you go under contract, if possible, so the contract and the loan are in the right name from the start. Changing the buyer’s name late in the process can slow a closing. If you already own a property personally, talk to your attorney and lender before moving it into an LLC, because transfers can have loan and title consequences.
Questions to ask before you apply
- Which entity type and state of formation make sense for me? (Ask an attorney.)
- Will the lender close in this entity, and which documents do they need?
- Who will be the guarantor, and what do they need to provide?
- Does title and insurance need to be in the entity’s name?
Ready to talk numbers?
BridgePoint closes investor loans in LLCs and similar entities every day. Get a quote and your loan officer will walk you through the entity paperwork for your deal.