Real estate investing and LLC credit.

[Anonymous]

Hello folks,

Earlier this year I bought a two-family home as a starter home with my wife, with the intention of holding the home for income for years to come after we buy our main home. I had also wanted to possibly get into getting more involved with real estate investing if this went well. As of now, things are going great. I have a good knowledge of landlord and tenant laws in my state, I have a background in finance and I am pretty good with most handywork projects, so i've decided that I will go forward and purchase another property for strictly investment purposes (unless we find one that we would rather move to for a couple years and rent out our current unit, but we really don't want to move yet) and see if things continue to work well enough to move forward with more. Our market is pretty stable and I have been looking lately and seeing attractive properties in the 80k-150k range which would be fairly low-risk as rents are stable in our area. I am also aiming for a home right near my current one which is preparing to go on the market soon for 120k, of which I could put at least 20% down, but nowhere near 100%.

Now to my questions. I would much prefer to use an LLC, which I don't currently have. Is it reasonable to expect to be able to form an LLC and be able to finance a property purchase in a relatively short amount of time? Is it easy to secure a mortgage with 20-35% down payment, or should I expect to need more (with an LLC) of a down payment? Should I simply buy the home with personal credit and eventually transfer both homes to an LLC? 

I have plenty more questions, but I didn't want to  bring too much up in the OP. Any advice, or links to helpful pages would be appreciated!

[Creditaddict]

I don't have any real-estate experience but I assume it will be pretty much like everything else credit and the LLC will not allow you to not PG (Personal Guarantee) the mortgage with your personal credit.

You very well might be able to list it in your LLC and not sure how that works with reporting to your credit report.

[Anonymous]

Thanks for the response.
Does anyone know how difficult it is to get a mortgage for an investment property in comparison to owner occupied mortgages?
Is it possible to get approved with less than 20% down? Is it best to use local lenders or national lenders focused on investments?

Thanks

[Anonymous]

It sounds like you and I do the same exact thing, so get ready for the bad news. Unfortunatley when you buy a home as a "non-owner occupied" or "investment property", fannie mae guidelines state that the borrower must put down 20% in order to close. For most people, it is rather difficult to come up with 20% of $200,000. That being said, if you have the liquid cash available, it is fairly easy to get approved assuming you have good credit. My wife had a house prior to us being married and once that is paid off, we'll be able to transfer it over to our corporation, the mortgage servicer said they just cant "transfer", it has to be a whole closing with an appraisal, inspection and all that jazz. What else ya got?

[Anonymous]

Also if you haven't already, I would look at Navy Federal Business Services for you business lending needs. They've been great to us so far!

[Anonymous]

My husband is an attorney and together we own three 4 plexes. From my understanding, because a new LLC wouldn't have any credit history, you must transfer the property as mentioned previously. Also, investment properties are much more difficult to qualify for, because they are considered higher risk (even though rental income will pay the mortgage). Thin files have a hard time getting approved (I'm 31 and have encountered this in the past), credit scores requirements are stricter, and also 2 years of employment is minimum. Any property with 3 units or more requires a minimum down payment of 25%. I would imagine that increasing that number would slightly increase your chances of approval. With investment properties, they look well beyond credit score. Good luck.

[Anonymous]

Ditto to what MissEnginer said.

The bottom line is you need to find and deal with lenders that will specifically lend against the future rental income of the proposed real estate investment.  They are hardly the typical retail banking outlets handing out Federal compliant mortgages they can then offload.  A real estate LLC is typically nothing else but a holding shell so it doesn't make too much sense to go to the trouble to build up a credit history for one.