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Squareone Pr…, Both Buyer and Seller in Scotts Valley, CA

i was told you cannot lend to an LLC or hold a deed in an LLC unless there is no mortgage attached. My new venture is a real estate LLC start up.

Asked by Squareone Properties, Llc, Scotts Valley, CA Fri Jul 30, 2010

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Jed Lane’s answer
It seems that you've misunderstood. It isn't that "you" can't lend to an LLC it is that the mainstream lenders don't lend to them.
My experience is that most corporate borrowing carries a personal gurantee rider along with the loan. In residential real estate, buildings of one to four units, the owner will move title in and out of the LLC just as they would a living trust to arrange or refinanace loans. Lenders lend against the "persons" ability to repay in residentail real estate. In investment residentail properties, 5 units and up, the lender lends based on the buildings abilaity to generate the repayment, not the borrowere's ability.

Seriously though, you should be asking an attorney for advice not realtors.
1 vote Thank Flag Link Sat Jul 31, 2010
Jed Lane, Real Estate Pro in San Francisco, CA
Good answer from John.

Sure you can hold a deed in an LLC. In fact, you should. (Check with a lawyer for details.) As John says, it's generally not a problem so long as you are willing to personally guarantee the loan. If a lender isn't willing to go that route, you can purchase the property in your name. Then once the deal is closed, you transfer the deed to the LLC. In either case, you're still responsible for the mortgage but the deed is in your LLC.

By the way, Gregory is referring to another way to invest--through self-directed IRAs. Certain federal laws require that investments made by IRAs be non-recourse. That is, if you default, the lender can't come after your other assets. As a practical matter, that means you often have to buy with all cash, so that there's no possibility of default and thus eliminate the recourse element. However, there's even an exception to that. Some self-directed IRA firms have come up with a dual structure of an LLC and an IRA, so that there can be multiple investors through multiple LLCs purchasing a single property. But that's a story (or an answer) for another day).

And I digress.

The simple answer to your question is that it's not only possible but wise (in almost all cases) to hold real estate investments in an LLC. Check with your lawyer and accountant for more details.

Hope that helps.
1 vote Thank Flag Link Sat Jul 31, 2010
Don Tepper, Real Estate Pro in Fairfax, VA
Square -

My experience is different. Many LLC these days are used as a result of setting up a self-directed IRA for the purchase of real estate (and other investments). There are lenders who will lend to LLCs but they are few and typically requires 50% loan to value (50% down). I have a local referral for a lender that can handle this type of requirement.

If you are jumping into real estate investment, I would suggest connecting with the SJREI group. They offer a ton of great info and resources. http://sjrei.net

Good luck!
Web Reference: http://www.TalkToCJ.com
0 votes Thank Flag Link Sat Jul 31, 2010
good afternoon...john, don, and jed are all correct...you will need a bank or other commercial lender to fund the loan....and, be prepared to offer a personal guarantee.....it's too easy to file a ch-7 on an llc...the personal guarantee is what will motivate a lender to lend on your project...nowadays..you need the protection of an llc when investing, so i can't blame you for the direction you are taking....lastly...if you plan to flip these or to hold onto them and rent them...is a direction you should consider as well....if you have some cash to buy them and fix them up..then maybe refinance them through a credit union rather than expecting them to loan against a fixer-upper...once you have a track record of doing it, you will find it easier to borrow against them...
best of luck to you....
bob mcclure-
mortgage one
brighton, michigan
0 votes Thank Flag Link Sat Jul 31, 2010
There are plenty of lenders who will lend on properties held by an LLC. The twist is that unless your LLC has a credit history, the owner of the company (you) will probably have to qualify for the mortgage personally and guaranty payment, just as if you were taking out the loan yourself. If you're going to do real estate investment as a business, the first thing to do is get pre-qualified with several lenders. Show them your business plan and make sure they can support you in the long term.
0 votes Thank Flag Link Sat Jul 31, 2010
I've only heard of this in self directed IRA's.
0 votes Thank Flag Link Sat Jul 31, 2010
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