Entity selection: LLC and financing, due on sale clauses, etc

I refinanced one of my properties, and in the process, they said I had to dissolve my LLC. The rate and terms were good so I did (after I bumped my policies to 1M). But I’d like to have my properties held in an LLC, none the least of which is that I don’t want my name and address out there, but I am concerned about finding future financing. Can someone help me understand why the credit union did this and whether or not hold my properties in an LLC could limit my financing options in the future?

If your looking for commercial loan you need Llc to get finance . If your going for FHA/Conventional loan types you can buy on your name and they will secure loan only on the personal name

@rrubovits @gseelanj Great question! Before we get too far along, please keep in mind that discussions on this forum do not constitute legal or accounting advice and are for informational purposes only.

This is something I’m sorting through personally right now on an existing rental. It’s complicated, to say the least, and touches on issues involving legal, accounting, and debt financing.

My existing rental is held in the name of my living trust, which is how I originally closed on the property. I set up an LLC post-closing and intended to transfer the title over to the LLC. In the meantime, all of the leases I drafted show the LLC as the landlord. I did this primarily for the supposed asset protection benefits, only to discover recently that my lender/servicer (Caliber Home Loans) is staunchly opposed to any transfers of title to an LLC. I checked in with them in advance, because the loan terms are very competitive and I didn’t want to run the risk of the due on sale clause being called.

Apparently my loan is a Freddie Mac loan, which expressly forbids title transfers into an LLC. Doh! It seems it’s not even Caliber’s decision to make.

The fact is that for many investors pursuing conventional loans, LLCs may not be the best approach. If you’re just starting out and you want the best possible loan terms, I think you may find it difficult to get a competitive loan as an LLC, even with a personal guaranty. Historically, many investors have simply closed personally and then used a quitclaim or warranty deed to transfer title to their LLC. Most lenders either didn’t find out or didn’t have sufficient reason to call the loan due under the due on sale clause. I’m not so sure that will continue to be true going forward, particularly if you have a screaming low interest rate.

Where LLCs aren’t an option due to debt financing restrictions, I imagine many investors are backstopping their exposure with umbrella insurance policies. Either way, we’d love to hear how other new (and more experienced investors) are approaching complicated decisions around entity selection, lender requirements, and asset protection.

Please post your replies below!

In filling out the SBA’s Emergency Injury Disaster Loan Application, I noticed the category of Sole Proprietorship. I think this is what I’m looking for. It’s not in my name, but basically that’s it. I’d still need to carry the large insurance coverage, but I seem to remember reading that banks don’t like SPs.
Any thoughts?

Also, on the subject of the SBA’s loan, it asks for gross revenue. My Schedule E shows a minimal profit, after all the adjustments. Do you think that is what they’re looking for?