I’ve been working with a group of investors for about a year and a half now who is buying rental property in Charlotte. I sell, rent, and manage what they own. Up to the beginning of this year they have been buying the property using conventional financing in one of their own names and simply quit claiming it to their LLC.

As of a few month’s ago they have kind of reached a point where they no longer qualify for a conventional loan due to the number of properties they own, and they are looking for a bank that will lend directly to their LLC to purchase property. The goal is to buy 2-3 cash flowing rentals a month under the LLC. The group has a ridiculous amount of assets personally and plenty of funds to put down towards the purchases, along with a bunch of business experience and stellar credit.

Can this be done?

A: Any company can purchase property in North Carolina. So the purchase of the property using the LLC is not the issue. The issue at hand is with the risk of providing a mortgage to an LLC on a residential property. For a great majority of lenders, the risk is too great and they will not originate a residential mortgage on an investment property when the owner is an LLC or corporation.

One alternative is to seek out commerical mortgage lending. A commerical mortgage typically has no issue with the owner or guarantor of a mortgage note being a company, corporation or LLC. However, single family residence properties are not commerical collateral, so this would not work out. In order to use commercial mortgage loans, an investor would need to seek out multi-family properties with at least 5 or more units. And in today’s market, these can be virtual goldmines!

So there are 2 other options to consider…

The first option would to get a commerical line of credit in the LLC’s name and use that line to purchase the properties. If they are planning to hold the properties there will be an eventual limit to the number of properties one can buy as you eventually use up the line of credit. With good assets and credit in the LLC’s name, this is a viable option.

The other option is to shift equity and ownership. In other words, if you have 20 properties, all with equity, take 8-10 of these properties and cash out as much equity as you can by refinancing their current mortgages. Then using the additional cash raised from these refinanes, you could pay off a couple of the other homes making them free and clear. Moving them to the LLC at this point is simple and removes them from the overall count of currently owned investment homes by the individual investors. This would then open up additional opportunities for those investors to purchase additional properties with conventional mortgages.

When an investor first begins buying rental and investment residential property, your conventional mortgage loans are a good resource. But for the larger more seasoned investor, you really need to find commercial credit lines in order to leverage more property. This is something best suited for large investment firms and groups, not local mortgage lenders or brokers.

I hope this helps.

Ed Nailor