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Real Estate LLC - How to fund / gain credit
Posted on 1/4/22 at 10:22 am
Posted on 1/4/22 at 10:22 am
Morning MT, I am a self admitted novice when it comes to the technicality’s involved here. I am also relatively young (<25) and trying to grow my portfolio. My current holdings consist of my personal home (held in my name) and a rental property (held in my LLC’s name). My first rental was purchased as my primary residence, then later switch to my LLC as it became a rental. I am currently starting to look for a 2nd unit and have a few questions. I would like to purchase this 2nd unit directly through the LLC which would require credit and funding. I am finding it difficult to establish credit on the LLC as I cannot get the company approved for a business card. Does anyone have any suggestions on how to grow credit on this account? Also, I will need to fund a portion of this purchase with my personal funds. What is the most efficient mode of moving money into an LLC account.
Thanks for any serious recs and trying to help out a beginner!
Thanks for any serious recs and trying to help out a beginner!
5
Posted on 1/4/22 at 10:29 am to PolarPop5
Why can't you get the LLC approved for a business card? Maybe it has changed in the last few years, but this use to be a fairly easy process.
Posted on 1/4/22 at 11:06 am to PolarPop5
Single member llc?
Posted on 1/4/22 at 11:06 am to GeauxTigers777
I thought this would be an easy process as well. When getting the business checking account the banker recommended going ahead and getting a business credit card which I agreed too. Submitted the application and was denied. It has been about 2 years since then so I may try again soon.
This post was edited on 1/4/22 at 11:06 am
Posted on 1/4/22 at 11:13 am to WDE24
Yes it is just myself but can add the wife if necessary.
Posted on 1/4/22 at 12:32 pm to PolarPop5
Have you tried getting the loan / credit card through the LLC but with a personal guarantee?
Posted on 1/4/22 at 1:00 pm to PolarPop5
Buy in your personal name and close with personal loan and personal rate (better than commercial rate). After Closing, have your title attorney transfer your home ownership to the LLC. I've done this several times years ago for purchases. IF YOUR LENDER ever decides to check the court records for ownership of the home (Never happened to me or anyone I've ever heard of), then they might require you to pay off the loan or else put the home back in your personal name. Your loan would always stay in your personal name, but the asset (home) gets transferred to LLC.
Posted on 1/4/22 at 3:08 pm to PolarPop5
1. A bank isn't going to make the loan to your LLC without your personal guaranty as well, so any underwriting of the loan should factor in both the credit/assets of the LLC and your personal credit/assets. If you're having trouble getting a loan/credit with larger institutions, try a local or regional bank. You should get friendly with a good, local bank officer.
2. To put your money into the LLC, you just make a capital contribution of that amount into the LLC. Other than for accounting purposes, there really aren't any formalities or documentation for doing it. Just write a personal check to the LLC and deposit that into the LLC bank account. It just increases your capital account in the LLC. If you're not following any of this, you probably don't have, but should get a CPA. Especially if you intend to grow your real estate empire. In fact, you should get in early and young with a good CPA and a good real estate attorney. Just my 2 cents.
This is not to be construed as legal or financial advice.
I'm not a blah, blah, blah, but I did stay at a Holiday Inn Express last night.
2. To put your money into the LLC, you just make a capital contribution of that amount into the LLC. Other than for accounting purposes, there really aren't any formalities or documentation for doing it. Just write a personal check to the LLC and deposit that into the LLC bank account. It just increases your capital account in the LLC. If you're not following any of this, you probably don't have, but should get a CPA. Especially if you intend to grow your real estate empire. In fact, you should get in early and young with a good CPA and a good real estate attorney. Just my 2 cents.
This is not to be construed as legal or financial advice.
I'm not a blah, blah, blah, but I did stay at a Holiday Inn Express last night.
Posted on 1/4/22 at 5:24 pm to bamaswallows
This is effectively what I did on my first property but with a commercial loan. What is the best way to convince the bank to let me take a personal loan?
Posted on 1/4/22 at 10:05 pm to PolarPop5
As mentioned earlier, I would reach out to a local bank in your area and ask to connect with a banker. Have a meeting or phone call and go over your plans, worst thing that can happen is you being back to square one and a few minutes of your time.
Prior to your meeting, I would list all your assets, related debt, and monthly income streams. Then what your plan/ goal is for your next endeavor. From there the banker should be able to present you a few options. You can the use these options to shop around.
One thing to remember is that bankers are trying to expand their client base, and if you’re “too small of a fish” they can set you up with an associate. If you don’t like the interaction or don’t think it’s a good fit, shop somewhere else but use this info you learned to better negotiate, etc.
Prior to your meeting, I would list all your assets, related debt, and monthly income streams. Then what your plan/ goal is for your next endeavor. From there the banker should be able to present you a few options. You can the use these options to shop around.
One thing to remember is that bankers are trying to expand their client base, and if you’re “too small of a fish” they can set you up with an associate. If you don’t like the interaction or don’t think it’s a good fit, shop somewhere else but use this info you learned to better negotiate, etc.
Posted on 1/5/22 at 7:04 am to PolarPop5
quote:
I thought this would be an easy process as well. When getting the business checking account the banker recommended going ahead and getting a business credit card which I agreed too. Submitted the application and was denied. It has been about 2 years since then so I may try again soon.
Send me your email I will refer you to the chase shaphire business card and I'll get points for it.
Posted on 1/5/22 at 8:55 am to PolarPop5
Why do you need to put properties in an LLC?
Posted on 1/5/22 at 9:53 am to ItzMe1972
LLC - Limited Liability Corporation. Say a tenant hurts themselves in your rental property. If they should sue, they can only go after the assets owned by the LLC, not you personally.
Posted on 1/5/22 at 9:57 am to bamaswallows
Is that even legal?
Posted on 1/5/22 at 10:35 am to jimbeam
quote:
Is that even legal?
No, and most definitely a violation of the loan agreement.
Posted on 1/5/22 at 11:30 am to jimbeam
quote:
Is that even legal?
On this note, I have a question for people who live in homes before they rent. How do you deal with insurance? Many years ago I watched a Meet Kevin video on why not to put your properties in an LLC and one argument was so that you can keep using homeowner's insurance. How is that valid?
Posted on 1/5/22 at 11:50 am to SlowFlowPro
It’s possible it could actually be cheaper to have a landlord policy since you don’t have to cover contents
Posted on 1/5/22 at 2:59 pm to SlowFlowPro
quote:
On this note, I have a question for people who live in homes before they rent. How do you deal with insurance? Many years ago I watched a Meet Kevin video on why not to put your properties in an LLC and one argument was so that you can keep using homeowner's insurance. How is that valid?
I am familiar with the video you're referring to and it's not good advice. Disclaimer: I don't know the guy in the video and I am not a residential real estate investor myself.
Correct me if I'm wrong, but my recollection is that the guy in the video was basically advising his viewers that a single-member LLC isn't worth establishing because of the risk of veil piercing or alter ego litigation. I also recall him advising that an LLC is "supposed" to be a partnership. Both of those ideas are completely uninformed and I remember thinking that the guy had a very limited understanding of veil piercing and alter ego litigation.
The important thing to remember with LLCs is that they are not bulletproof and the protection they afford is only as good as the foundation laid by the member(s). An entity that holds real estate investments should be managed and run just like any other business. Veil piercing doesn't just "happen" because you have a single member LLC - it happens as a result of a number of other mistakes made by the member(s) of the entity, i.e. co-mingling of personal/business funds, not keeping up with corporate formalities, using the entity as a personal ATM, or in most cases, fraud. An LLC is not a substitute for insurance and it will not prevent the member(s) from getting sued, but it will provide an easy out for the member(s) if run the right way.
I've never heard of someone being able to keep standard homeowner's insurance to cover properties which are providing rental income, regardless of ownership status. The only thing that I can think would have even given rise to his thought there was that if you retain personal ownership of your home, then you are still the named insured on your homeowner's policy, but I have to believe any adjuster would deny or exclude coverage based upon the property being used as a rental. Once the property is deriving income, you would need ancillary property insurance and a personal and umbrella for liability. A landlord policy generally includes both coverages. At the very least, an underwriter would require an endorsement extending coverage to damage which occurs while the residence is being rented. If the property were held by an entity, then the situation is the same, except for your insurance would be commercial. Again though, I'm not a residential real estate investor and I haven't come across that issue before.
This post was edited on 1/5/22 at 3:06 pm
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