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First time rental property purchase: LLC or not worth it for one property?
Posted on 10/10/23 at 11:13 pm
Posted on 10/10/23 at 11:13 pm
This will be a partial financed vacation home that will be rented more than 60% of the time.
I think I understand some of the value of using an LLC but not sure if I’m missing the tradeoffs.
Will I still get favorable interest rate mortgage for 30yr (because that’s the only thing affordable at these rates) under an LLC?
Better the personal finance and transfer to an LLC later?
I think I understand some of the value of using an LLC but not sure if I’m missing the tradeoffs.
Will I still get favorable interest rate mortgage for 30yr (because that’s the only thing affordable at these rates) under an LLC?
Better the personal finance and transfer to an LLC later?
5
Posted on 10/11/23 at 1:30 am to Drilltiger
quote:m
Will I still get favorable interest rate mortgage for 30yr (because that’s the only thing affordable at these rates) under an LLC?
You likely won’t get a mortgage at all if the LLC is requesting the loan. If you choose to go that route, buy it as an individual and the title company will be able to steer you in the direction of getting it in your llc’s name after close.
Posted on 10/11/23 at 4:49 am to Drilltiger
quote:
favorable interest rate mortgage for 30yr
Well you missed favorable interest rates by a year or two.
quote:
Will I still get favorable interest rate mortgage for 30yr (because that’s the only thing affordable at these rates) under an LLC? Better the personal finance and transfer to an LLC later?
You should be able to still purchase under an LLC, but sign a personal guarantee on the loan. This would shield you from liability if something were to happen at the property.
Posted on 10/11/23 at 5:43 am to Drilltiger
Qualify and purchase in your name. Then t/f to your LLC. Benefits of LLC ownership likely outweigh any negatives...consult both your CPA and attorney
Posted on 10/11/23 at 6:48 am to Drilltiger
As a commercial banker who financed condos at the beach before I would put in LLC. There are private lenders that do 30 year financing within LLC their rates tend to be slightly higher and charge more fees.
If you do LLC but do not go with private lender you will need to go to a local bank to finance and your terms are more like 5 year term and 20 year amortization. Rates could be anywhere from 7.50% to 9.00%.
The best option is do a 2nd home financing which will be best rates and then transfer. The mortgage will still show on your personal credit bureau. It will affect your DTI for future purchases you finance.
If you do LLC but do not go with private lender you will need to go to a local bank to finance and your terms are more like 5 year term and 20 year amortization. Rates could be anywhere from 7.50% to 9.00%.
The best option is do a 2nd home financing which will be best rates and then transfer. The mortgage will still show on your personal credit bureau. It will affect your DTI for future purchases you finance.
Posted on 10/11/23 at 8:17 am to TJG210
quote:
You likely won’t get a mortgage at all if the LLC is requesting the loan.
huh? I believe you are 100% wrong here buddy.
Posted on 10/11/23 at 9:53 am to soupboy10
quote:
As a commercial banker who financed condos at the beach before I would put in LLC. There are private lenders that do 30 year financing within LLC their rates tend to be slightly higher and charge more fees.
If you do LLC but do not go with private lender you will need to go to a local bank to finance and your terms are more like 5 year term and 20 year amortization. Rates could be anywhere from 7.50% to 9.00%.
The best option is do a 2nd home financing which will be best rates and then transfer. The mortgage will still show on your personal credit bureau. It will affect your DTI for future purchases you finance.
This. You also can't just buy a piece of property, mortgage it, then transfer to an entity. Your mortgage agreement will likely prohibit that transfer and you'll have to refinance. If you are going to house the property in an entity, you need to do so from the beginning.
Posted on 10/11/23 at 10:19 am to bluemoons
I agree with bluemoons on this point but if you are just transferring the asset and continue to make payments I have doubts a mortgage servicer would notice but there is a risk they could call your loan.
Posted on 10/11/23 at 10:24 am to soupboy10
quote:
I agree with bluemoons on this point but if you are just transferring the asset and continue to make payments I have doubts a mortgage servicer would notice but there is a risk they could call your loan.
this. i personally would never own a rental not in an entity, but if you have a nice size insurance policy, there is plenty of protection there if you choose to go that route. bank is going to make you personally guarantee it even with llc, so it won't affect your rate. even if you do your personal name, the rate will be higher due to it not being your residence.
Posted on 10/11/23 at 2:38 pm to soupboy10
quote:
I have doubts a mortgage servicer would notice but there is a risk they could call your loan.
I've actually seen it happen, though I agree with you that it would be really unlikely. In the situation I was involved with, the lender didn't really turn the screws, but they forced the borrower to refi.
Posted on 10/11/23 at 2:55 pm to bluemoons
quote:
I've actually seen it happen, though I agree with you that it would be really unlikely. In the situation I was involved with, the lender didn't really turn the screws, but they forced the borrower to refi.
I'd love to hear more about this. I know the risk exists, but I've never seen it actually happen, as long as the mortgage payments were being paid on time, insurance kept in force, etc.
To the OP, LLC is purely a liabilty protection issue (which is important). No tax ramifications either way. If it's just you or you and a spouse who are the memebers of the LLC, still gets reported directly on 1040. Now if others are members of the LLC, you will need to do a partnership return.
Posted on 10/11/23 at 3:02 pm to Drilltiger
And what is the benefit of an LLC in this situation again? If you are a single owner, I don’t see any real benefit. What do you perceive to be the benefits of holding it in an LLC?
This post was edited on 10/11/23 at 4:11 pm
Posted on 10/11/23 at 4:36 pm to LSUFanHouston
quote:
I'd love to hear more about this. I know the risk exists, but I've never seen it actually happen, as long as the mortgage payments were being paid on time, insurance kept in force, etc.
It was related to a partition of community property and there was a SFR property that was a community asset. The lender became aware that the couple had transferred the property to an LLC a couple of months after the acquisition and origination of the loan. Lender felt cheated out of the 1.2-1.5% delta in the commercial rate. Threatened defaulting the loan and throwing a wrench in the partition. Borrower was ultimately forced to refinance with the lender.
Posted on 10/11/23 at 7:34 pm to bluemoons
We had a commercial loan guy from Fidelity Bank in BR pitch our office yesterday. They have an investors/ LLC product. You can choose a 3, 5, or 10 year adjustable rate mortgage. No balloon at the end of the term just rate adjustment based on market rates. 2% cap 6% total on the life of the loan.
Loan is amortized over 30 years. I think they would be worth a call for specifics.
Loan is amortized over 30 years. I think they would be worth a call for specifics.
This post was edited on 10/11/23 at 7:37 pm
Posted on 10/11/23 at 8:26 pm to BigEtiger
LLC not needed. More complicated than it needs to be. Just buy umbrella policy.
Posted on 10/12/23 at 8:59 pm to LSUFanHouston
Correct just liability protection. Just spouse and I
Lender has answered a few of my questions around this and is guiding me to transfer after. But is also classifying as an investment property and seems to be prime rate but I need to pressure him on the official paperwork to confirm.
But I have the feeling he’s just gonna give me a contact to a CPA or something after and think he’s done his job.
Guess I need him to show me the lender agreement and try to see if I can get something in writing that they won’t corner me into a refi in the future.
Lender has answered a few of my questions around this and is guiding me to transfer after. But is also classifying as an investment property and seems to be prime rate but I need to pressure him on the official paperwork to confirm.
But I have the feeling he’s just gonna give me a contact to a CPA or something after and think he’s done his job.
Guess I need him to show me the lender agreement and try to see if I can get something in writing that they won’t corner me into a refi in the future.
Posted on 10/13/23 at 1:16 pm to SloaneRanger
quote:
And what is the benefit of an LLC in this situation again? If you are a single owner, I don’t see any real benefit. What do you perceive to be the benefits of holding it in an LLC?
He wants the LLC for the liability protection of his assets. If the worst thing imaginable happens he may lose the rental as part of the LLC, but he wouldn’t likely lose his primary (or other assets not in the LLC).
Posted on 10/13/23 at 6:28 pm to BigBinBR
Well if it’s tort liability he’s worried about, that is what insurance is for. In a one person LLC there really isn’t much protection for the individual when it comes to tort liability. They can always be sued individually for their own actions.
Posted on 10/13/23 at 10:31 pm to TJG210
quote:
and the title company will be able to steer you in the direction of getting it in your llc’s name after close.
And trigger the due-on-sale clause, rendering you in immediate default. Lol.
Posted on 12/10/23 at 7:28 am to McLemore
So I have a house in Metairie that I'm renting out now and live in Fort Myers. Would it be easier to write off my trips back to Louisiana with an LLC
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