You can get a mortgage for LLC rental property. It is a trickier process than a standard mortgage, but it is worth it. Also, if you have a property in your personal name, you can still form an LLC, transfer title, and either plan with your mortgage company or refinance so that the loan is in your LLC’s name.
- Form an LLC before you buy real estate rental property.
- If you already own a rental property in your name transfer it to an LLC.
Liability and tax concerns make it worth it to form an LLC for each of your real estate properties. If you plan to buy real estate, form the LLC first. However, if you already have investment properties you can still transfer them to a corporation. It will just be a little trickier.
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How Do I Get a Mortgage for LLC Rental Property?
A mortgage for LLC rental property is very similar to any conventional mortgage. However, there are few things you should do before you apply for a mortgage:
- Register your LLC with the state.
- Get an Employer Identification Number (EIN) from the Internal Revenue Service (IRS).
- Open a business checking account.
You may register with your state’s department of labor or taxation. They may also call it something different. Once you get these in order apply for your mortgage.1
Mortgage for LLC Rental Property with a Conventional Loan
You can get a mortgage for LLC rental property with either a large commercial bank or a local bank/credit union. Each has benefits as well as limitations.
Conventional mortgage lenders want residential loans, and they generally do not treat investors as a priority. The underwriting is not designed for investors, and often that makes the process difficult. They:
- Report the mortgage on your credit, even if it is under the LLC.
- Only allow four mortgages on your credit report.
- Require income documentation.
If you are a first-time investor or only want one or two properties for supplemental income, these conditions may not be as important as the convenience of using a traditional lender. However, you can use a local bank or credit union, and often they keep the loan in-house and do not report it on your credit. If you have a good relationship with a small bank, you may be able to mortgage several properties with them because they use different underwriting rules.
Mortgage of LLC Rental Property with a Portfolio Lender
Portfolio lenders keep your loan(s) in-house and do not sell them to third parties. This has distinct advantages for investors. They:
- Do not report on your credit.
- Do not limit the number of loans you can have with them.
- Are more flexible – they can accommodate quirks with the property or contract easier than most banks.
- Can often close faster.
- Usually have higher fees and closing costs than banks.
In fact, most portfolio lenders give you better rates as you make more loans. This is because you develop a reliable track record. Their risk decreases, so they reward you with better terms. Visio and Lending One are two portfolio lenders that you may try, but it may be worth it to look around for who you work best with.
How Do I Transfer My Rental Property to an LLC?
It is a good idea to transfer your rental property to an LLC for liability issues, but you need to take the correct steps, or you will have problems. Here is what you should do:
- Contact your lender and learn what requirements they have about your loan before you transfer the title.
- Form an LLC and file with your state.
- Get an EIN from the IRS.
- Open a bank account.
- Transfer the title from you to the LLC – We recommend that you use a warranty deed to accomplish this.
- Record the deed.
- Change your lease.
Your lender may invoke a “due on sale” clause when you transfer the title. They may also allow you to transfer the title if you remain full obligated on the mortgage. Finally, they may require you to refinance the loan in the name of the LLC. Therefore, you must speak with your lender before you do anything with the title.
When you fill out the deed make sure to sign it and file it with the registrar in your county. If you do not sign it, it is not legal. Likewise, it only legally transfers when you record it.
After that change any leases you have with tenants who live on the property. They should pay their rent to the LLC now, and you should deposit the money into the LLC’s bank account.2
Should I Put My Rental Property in an LLC?
You should put your rental properties in an LLC because it limits your liability exposure, but there are other good reasons, too.
- Limit personal liability – the only assets at stake are those owned by the LLC.
- Separate properties from each other – insulate each property from the other(s) by forming an LLC for each.
- Pass-through taxation – All income from your LLC flows to your individual tax return. This minimizes your income tax.
- Easily separate your business and personal expenses.
You should treat this as a business rather than a hobby. Therefore, you should establish a corporation.3
Can an LLC Own Multiple Properties?
An LLC can own multiple properties, and there is no limit one corporation can own. Having said that, you should form an LLC for each property, because you reduce liability exposure this way. The LLC:
- Is responsible for each property under its umbrella.
- Can be sued for any of the properties it owns.
- Will have to pay damages from the assets of any of its properties resulting from a judgment.
The main reason you formed the LLC in the first place was to separate your assets from that of the real estate business. It makes sense to further separate the assets of one property from another. The downside is more administration, but the upside of limiting your liability exposure outweighs the additional paperwork.
Final Thoughts on Mortgage for LLC Rental Property
It is a very good idea to put your investment property in an LLC for liability concerns. If you have a property that you need to put in an LLC, your mortgage company will require you to change the mortgage. If you already have an LLC then make sure your LLC buys the property, not you as an individual.