Can you get a mortgage for an LLC?
Yes, but should you?
By Scott Bialek / Co-Founder of Hurst Lending & Insurance
Before I initially set up my LLC, I didn’t know that conventional financing (i.e. a loan with the lowest interest rates) is not available to investors who want to buy an investment property using an LLC. I found that, in order to buy an investment property through my LLC, I would have to use cash. However, like most people, I had neither the desire nor the ability to pay cash for an investment property. Therefore, I abandoned my idea to buy the property with the LLC. Instead, I bought the property in my own name – using conventional financing and insurance to protect myself.
I continue to use this option because conventional loans are the cheapest and most cost-effective way for a real estate investor to buy investment properties.
Characteristics of a Conventional Loan:
- The lowest interest rates available for 1 to 4 family properties
- Fairly low down payment requirements
- Long-term fixed rates (30- or 15-year)
Conventional loans have these attributes because they have the support of the Federal Government. The government’s support means they can be sold to a government-sponsored mortgage entity (Fannie Mae or Freddie Mac). Conventional loans are a great option, but can only be made to an individual or a living trust.
Methods to Secure a Conventional Loan for Investment Properties
Over the years, nearly every aspiring real estate investor I meet asks the same question. Which is,“Can I get an LLC loan for a rental house so I can protect myself?“. Since this issue comes up so often, I’ve sought out creative ways to address this issue for our clients. We have four different methods of addressing this issue:
- Insurance + Conventional Loan: Purchase the property in your own name to get the lowest rate and buy insurance to protect your assets.
- Conventional Loan + Transfer to LLC in Future: Purchase the property in your own name and transfer it into your LLC when it is paid off (if you get a loan with us, I will draw up the legal papers to transfer the property for free when your loan is paid off).
- Trust + Conventional Loan: Buy and finance the property using a living trust (we offer low-rate conventional loans for rental properties held in a living trust). I will put together a basic trust for you at no cost if you use us to finance your property.
- Rental Property LLC Loan: Buy the property using our new Investor LLC Loan Program.
Conventional Loan + Insurance:
You bundle a normal, low-rate conventional loan in your name with the correct insurance for personal protection. This is the best option we have to help real estate investors get the lowest rates possible and asset protection.
One of the most cost-effective offers that we have is to provide a policy to cover your primary residence and extend the liability portion of the policy from your main home to your rental property. In this way, you avoid paying for the liability component for each rental property, and instead pay it only once. This can literally save you thousands of dollars per year depending on the number of rentals you have. The best part is that you’ll still end up with the same amount of liability protection on each rental; you just don’t pay double for the same coverage. We can also bundle all of your insurance for multiple rental properties into one policy.
Conventional Loan + Transfer to LLC in Future:
This option is very simple. You buy the property in your name first. Then, transfer ownership to your LLC when it’s paid off. If you get a loan with us, I will be happy to draw up the legal paperwork to transfer the property for free to your LLC when your loan is paid off.
Conventional Loan + Trust:
You can use a living trust to secure a loan for the purchase of a rental property. The benefit of this program is that we can put you into a conventional loan program. If you use us for financing, I will happily put together a basic trust for free.
Rental Property LLC Loan:
If none of the prior options meet your needs, our LLC Investor Loan Program is a great option for investors. In this option, investors exchange the legal protection of an LLC for a higher interest rate and larger down payment. This loan product acts more like a “commercial” loan where we (or our lending partners) keep the loan in our own portfolio. These loans cannot be sold to Freddie Mac or Fannie Mae and, consequently, have higher interest rates and require at least a 30% down payment.
How to Minimize Liability While Maximizing Value
We also combine options to create multiple layers of protection. An example of this is: a low rate conventional loan, with the correct legal entity, a higher liability coverage extended from your primary residence, and an umbrella policy to give you additional protection. I layer protection because increasing the liability component on your primary residence and umbrella policies are inexpensive. If you want to set up an LLC to buy a rental property, then layering your protection is worth consideration.
Finally, if you are looking for a low down-payment loan for your rental property, we also offer a Low Down-Payment Investor Loan option with just 15% down. The best part is that this loan has no PMI and low conventional mortgage rates. This is a proprietary loan product that we offer exclusively to our customers. However, properties bought in this manner must be in your name, not an LLC.
In addition to being one of the founders of Hurst Lending, I am also a real estate investor. I have a portfolio of residential, apartment, and retail properties. My favorite part of my job is aiding investors in building their own portfolios. I provide advice and suggestions on how investors can succeed in investment real estate that other lenders can’t. My philosophy is to take advantage of the current low-interest rate environment to build a portfolio of high-quality real estate that will pay off over the long term.
Please feel free to contact me directly at anytime. Whether you need a loan for your next purchase or refinance or just want to talk to another investor, I am available.
Scott E. Bialek
*Please note that this article is not intended to provide legal advice. You should contact your own attorney to understand the legal protections that are available to you when you purchase real estate.