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timdow
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Posted: Tue Dec 20th, 2005 10:52 am |
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Mortgage Help Said:Never quit-claim unless you are 100% certain that you will never need to refinance.
Timdow Replys: Why is this? Are you saying this because the LLC will not have sufficient credit as a new entity to do the refi? Or is it something about the LLC not being on the Note that will cause problems?
Mortgage Help said: The clause which a lender has a right to exercise is only used when the note goes into default.
Timdow replys: I understand why lenders would not want to doa "due on sale" unless it is in default. Due to government regs on how much they can loan divided by how much they have forclosed (I think is something like 8:1) it is not in their best interests to do so. I was just concerned that there was a part of the picture that I was not seeing.
Mortgage Help Said: Not much liability protection with an LLC. Look at Worldcom and Enron, they went right for the officers.
Timdow Replys: I disagree here. In the Case or Enron and Worldcom, we are talking about fraud, and that changes things signifigantly. The key to LLC in my understanding is that if there is not any fraud or deception involved, personal assets are protected fro liability. Do you have a differing opinion?
Mortgage Help Said: Most of the time its the landlord taking the tenant to court, not the other way around. Just be attentive to the realistic needs of your tenant.
Timdow Replys: I agree that the Landlord will take the tenant to court, or at least have a valid claim against the tenant, more than the other way around. What I am worried about here is someone trying to do the BIG SCORE with a lawsuit. Slip and fall, maintenance problem causes injury, descrimination, etc. Landlord's are seen as having signifigant assets, and therefore are targets. I always treat my tenants well, and try to do the right thing, but Stuff happens.
Mortgage Help Said: LLC's usually need to have 2 years existence with adequate financials in order to obtain favorable financing. Your best terms and rates will always be for an individual borrower.
Timdow Replys: Understood. So if I quit claim, and wait the two years while building the business credit, will I be able to refi the loans that have been quit claimed?
You can always have the LLC manage the property and assume all liability (for whatever thats worth).
TimdowReplys: I think in this case that hiring your LLC as property manager might provide some protection, but the owner would still be at risk. Any lawyer is going to go after the entity or individual with the deepest pockets.
Thanks,
Timdow
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MortgageHelp
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Posted: Tue Dec 20th, 2005 02:08 am |
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Never quit-claim unless you are 100% certain that you will never need to refinance.
The clause which a lender has a right to exercise is only used when the note goes into default.
Not much liability protection with an LLC. Look at Worldcom and Enron, they went right for the officers.
Most of the time its the landlord taking the tenant to court, not the other way around. Just be attentive to the realistic needs of your tenant.
LLC's usually need to have 2 years existence with adequate financials in order to obtain favorable financing. Your best terms and rates will always be for an individual borrower.
You can always have the LLC manage the property and assume all liability (for whatever thats worth).
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timdow
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Posted: Fri Dec 16th, 2005 10:54 am |
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Thanks this is informative. How about purchasing as an individual, and quit-claiming to LLC? Lender could envoke due-on-sale, but my understanding is that the chances of this is remote. Does quit-claiming to LLC relieve me of personal responsibility (as long as there is not gross negligence)?
Would LLC really need to be a cash buyer, or just need 10% to 20% down?
Thanks,
Tim (cherokeeinvestor@yahoo.com)
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MortgageHelp
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Posted: Sat Aug 6th, 2005 12:07 pm |
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Here is a friendly note about purchasing or refinancing investment property as an LLC or business entity. I run into this problem all the time because of so many real estate books pushing LLC's.
Its a great idea only if you are a cash buyer and will never need to refinance.
But if you need financing, your best rates and higher loan to value programs are only for individual borrowers (note: you can have multiple partners act as co-borrowers).
You can cash out up to 95% on investment property and buy at 100% (even stated). Unheard of for business entities.
Concerned about liability: You can help protect your assets as an individual property owner without having the property titled under the LLC. Simply have the LLC lease the property from you for a small fee & assume all responsibilty. Then have the LLC lease it to the tenant and collect the rent. Consult with your attorney and tax advisor. They'll show you how to orchestrate it effectively.
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