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 interested in buying an investment property using an LLC. I swiftly realized that if I wanted to buy the 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. Consequently, I abandoned my idea to buy the property with the LLC; instead, I bought the property in my own name and utilized conventional financing and insurance to protect myself.
This option for purchasing the property was prudent because conventional loans are the cheapest and most cost-effective way for a real estate investor to buy investment property.
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 are supported by the Federal Government and can be sold to one of two government-sponsored mortgage entities (Fannie Mae or Freddie Mac). Conventional loans are a great option, but loans can only be made to an individual or a living trust (see my explanation below for how to use a trust to get liability protection and low conventional interest rates).
Methods to Secure a Conventional Loan for Investment Properties
Over the years, nearly every aspiring real estate investor I have met asked the same question “Can I get an LLC loan for a rental house so I can protect myself?”. Since this issue comes up so often, I have sought out creative ways to address this issue for our clients. We have four different methods of addressing this issue:
- Conventional Loan + Insurance: 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).
- Conventional Loan + Trust: Buy and finance the property using a living trust (we offer low-rate conventional loans for rental properties held in a living trust). I can also help you put together a basic trust for no cost if you are using us to finance your property.
- LLC Rental Property Loan: Buy the property using our new LLC Investor Loan Program.
Conventional Loan + Insurance:
The best option we have to help real estate investors get the lowest rates possible and protect their assets is for us to provide a normal low-rate conventional loan in your name and bundle it with the right kind of insurance. 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. The benefit of this program is that you can 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, just buy the property in your name and transfer ownership to your LLC when it is paid off. If you get a loan with us, I will be happy to draw up the legal papers to transfer the property for free to your LLC when your loan is paid off.
Conventional Loan + Trust:
With this program, you can set up a living trust to purchase the property, then use the trust to get a loan for the rental property. The benefit of this program is that we can put you into a conventional loan program. I am happy to put together a basic trust for free if you use us to finance your property.
LLC Rental Property Loan:
If none of the prior options meet your needs, our LLC Investor Loan Program is a great option for investors who want the protection of an LLC and who are willing to accept a higher interest rate and make a larger down payment in exchange for this legal protection. 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 are also eager to work with you to combine these options so you have multiple layers of protection (i.e. a low rate conventional loan, with the correct legal entity, with a higher liability coverage extended from your primary residence, and an umbrella policy to give you additional protection). I layer protection in this manner since neither increasing the liability component on your primary residence nor umbrella policies are very expensive. If you are worried enough to 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 purchased 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; my aid goes beyond that of a typical lender because I provide advice and suggestions on how investors can succeed in investment real estate. 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 if I can help provide a loan for your next purchase, refinance, or if you just want advice on how to get started/expand your real estate investing activities.
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.