What is an LLC ?

• A limited liability company (LLC) is a type of business owned by a single person or multiple individuals.
• The tax burden on LLCs is not the same as that of C corporations. In contrast, LLCs are "pass-through" entities. This means that the net profit or loss is passed directly to each member of the LLC, and reported on Federal Tax Forms It is then taxed according to their individual rate.
• A single member LLC is possible, or a multi-member LLC. For example, a joint venture for investing in rental property can be formed by a person. The state is responsible for forming LLCs, and the formation of an LLC will differ from one state to the next.

The Benefits of Owning Rental Property through an LLC Has Several Advantages:

Limited Liability

A limited liability company can limit your legal responsibility to the assets that are held by the LLC. If you ever have to deal with a lawsuit against a vendor or tenant and you receive a judgment, your assets are only at risk if they are held by an LLC. There are exceptions to this protection, for example, when an investor is guilty of fraud or “bad boy carveouts”.

Partnership Investment

• LLC’s simplify partnership investments because the entity owns the real estate and more accurately describe the specific investment property within the LLC.
• The LLC operating agreement can specify that each member may have a different percentage of ownership or different shares in the profits and losses.  The options and flexibilities are limitless .
• The LLC's income and losses are transferred directly to its owners at the end of each year.  The income will then “pass through” to the individual using a K-1 statement. The member then pays taxes based on their individual tax bracket.
• Comparatively, a C-corporation pays double taxes! – A corporate tax while its shareholders pay individual taxes.

Improved Privacy

• The anonymity of property ownership is also improved by LLCs. There are some states like Wyoming and Delaware that are completely invisible to the public eye.
• Tenants and vendors will not know who owns the property if it is registered in the name LLC. Investors use a property manager to manage the day-to-day operations.

Keep Rental Properties Separate

• Forming a separate LLC is a great idea for every rental property you own. You can keep your business assets separate from your personal assets.
• If there is a legal action against one of your properties, your other properties and personal assets will also be protected.

Don't mix business and personal expenses

If you are ever audited by the IRS, it will look to see if your personal and business expenses have been mixed up or co-mingled.  Some states like Florida actual say it’s against the law to co-mingle funds between security deposits, rent deposits, and personal funds.  Just a solid practice NOT to Co-mingle funds!

Your LLC should be able to have its own debit and credit cards, as well as a bank account.

Mortgage Options for LLCs

Many mortgage lenders can make it hard for you to obtain a mortgage if you have formed an LLC. This is because they want to protect your personal assets.   Rental Home Financing Loves to Finance Rental Property

If you are not an experienced investor, or have a proven track record of success in real estate investing, you will likely be asked to personally guarantee your loan. A lender will not only look at the financial statements of your rental property and your rent roll but also your credit history and your assets.

Let's examine the documents you need to prepare and your options for an LLC loan.

Documents Required for LLC Mortgage Loan

• Articles of Incorporation - You'll need to register your LLC with the Secretary of State if you haven’t already.

• Operating Agreement - If you plan to have investors, it's important that your LLC has an operating agreement.

• EIN – SS4 Form - You also will be required to obtain an employer identification (EIN), which is available online at IRS EIN APPLICATION PAGE

• Certificate of Good Standing or sometimes called Certificate of Existence – Basically states that the entity is up to date with all state reporting obligations for that year.

Conventional mortgage

• The best mortgage terms, rates and down payments are available with a conventional mortgage. The lender will want to see your personal guarantee along with your credit report, personal financial information and a personal financial statement.
• Although there are drawbacks, guaranteeing a loan is a great way to start building credit for your LLC. This is especially true if you're just starting out.

Savings & Loans and Community Banks

• Banks and savings and loan institutions in the area where your rental property is situated are excellent options to get a mortgage for your LLC.
• They may be more willing because they are more focused on the community and you provide a needed rental property in the market.

Portfolio Lenders

• Portfolio lenders, such as rentalhomefinancing.com can structure LLC mortgages in a way that meets your investment goals. The funds are funded faster by portfolio lenders than smaller banks and conventional lenders, but the fees and interest rate may be higher.
• These lenders are a good option for obtaining an LLC loan. You can refinance at a future date to get better terms.

Blanket Loan Lenders

• Private lenders can provide short-term funding for investors who are looking to rent out a rental property. This is especially true if the property needs extensive renovations.
• Private lenders may ask you to collateralize your loan by using other assets. Private lenders are often very creative in designing a mortgage to fit your LLC's needs.

Create a credit line to your LLC

• It may be worth it to go through the hassle of obtaining your first LLC loan.
• When you add a new rental property to your portfolio, you can get additional loans easier by building a credit for your LLC.
• You'll eventually reach a point where lenders will consider your performance as an investor in real estate and the cash flow generated by your investment, instead of your personal financial status.

Let’s take the first step together!

You can call us right now or click the button and see what we're all about! You can often tell within minutes if someone you are talking with is a rookie hire or an experienced professional who quickly understands the basic goals of your transaction. We deliver the best overall value in the industry.

• Come explore how our tailored financing solutions can make your real estate goals a reality. Rental Home Financing is ready to be your partner in creating a strong and prosperous future with rental property investments.

Never an upfront fee, we will provide a SOFT QUOTE without a credit pull and minimum information. There is nothing to lose by speaking with us today, call now at 888-375-7977 or Apply Online for a quick approval.