Getting Real Estate Investment Loans Using LLCs (BANKING SETUP)

Getting Real Estate Investment Loans Using LLCs (BANKING SETUP)

– Hi, Clint Coons here with
Anderson Business Advisors, and this video I am
going to discuss lending and limited liability companies. (upbeat music) Now when it comes to LLCs
and lending, this can be a particular problem for many
individuals who are looking to acquire property, and what I'm getting at is it has to do with underwriters. I don't know how many of you
that are watching these videos now have been down that road
before where you've created LLCs, and then you go
in to apply for a loan and you're using traditional
financing and the underwriter gets your packet and they
don't know what to do with it, and so they just throw up
all over it and send it back and say to the broker, we
can't help this individual.

I know this because I've
been there myself with my own tax returns, and so what I'm
gonna share with you are some things I've learned over
the years of investing in real estate where you
have asset protection, tax planning, and lending,
where those all collide, and they can create
problems for you in growing your business 'cause
at the end of the day, we want to make sure that
you're able to maximize your portfolio, grow
it as fast as possible, and you don't need
underwriters to stymie that because they don't understand
what it is you're doing or how you're structured
because in my experience, a lot of underwriters out
there, they're not coming out of college at the top of their class. Some of them don't even go to
college and they have not yet taken courses to become
familiar with taxation or business entities. They're great at putting numbers
into boxes, but they can't think outside of the box, and
that can be a problem for you.

So let me just show you some things that you need to be aware of. Now, one of the strategies
that we teach a lot of times is to protect your investable
cash, that is create a limited liability company in Wyoming,
so you have your Wyoming LLC here, and this is where
you're gonna put your cash, and you're doing that for
asset protection purposes. I want to get the money out
of my name so if I get sued individually, that money's
not available to my creditor. Now, this can present a
problem for you when it comes to financing real estate, getting loans on mainly residential,
not so much on commercial, but more so on the residential side.

So if you know that you're gonna
go out and you're gonna buy a piece of residential
and you're going to use traditional financing, that
means you're going to close in your own name, or even
if you're not gonna close in your own name, you're gonna
close in a limited liability company 'cause it's a
portfolio lender, and you plan to put down 20%, okay, that's
what you're gonna be putting down to buy this property,
well if I have a, let's say I had 160k
sitting up in this LLC, and I'm looking for property in the 80 to $100,000 price range. I'm looking for investment
real estate that falls within that price range,
then you know the most you're gonna need to put down
is probably about $20,000 if you find a $100,000 piece of property. So what you should do then if
you have this structure set up which I highly recommend if
you're a real estate investor, you have your investable cash
protected, you're gonna want to take out a distribution
out of this LLC of 20k. The 20k represents the
20% down you're gonna need on a $100,000 loan, so you're
gonna want to take that 20k out and put it into
your personal checking.

All right, get that into your
personal checking account, okay, and you want to do
it two months in advance. Okay, that's very, very
important you do this. It's gotta come out two months
in advance of you actually getting that property
tied up under contract. Why? Well it comes down
to seasoning of funds, so when the underwriter
or the broker asks you to submit the information
for the underwriter, they're gonna put together
a loan packet for you, they're gonna want to see two
months of bank statements, and if your down payment
needs to be $20,000, they expect to see $20,000
in your bank account. If they don't see the
$20,000 in your bank account, they're gonna want to know
where is that money coming from? Is it a gift, is it a loan, and
if you tell them it's coming from an LLC, then they're
gonna want to know well, why is it coming from an LLC,
and you're gonna say well, that's where I keep my
investable cash when it's not being deployed, and that's
all of a sudden gonna create heartburn for them because remember, they like to put people into boxes.

You no longer fit into their box. Let's say you have this LLC
set up as a disregarded LLC, which is the way my LLC is
set up and how we set them up for the vast majority of our
clients so it doesn't have to file a tax return. They're gonna want to go to
the IRS and they're gonna want to find a tax return to
associate with that LLC so they can verify that
it's yours, and you tell 'em it doesn't file a return,
and they're gonna look at you and say how can that be? It's a limited liability company,
it has to file tax returns and you're gonna say, but
no, it's a disregarded LLC.

Never heard of it. Literally, I've been down this
road before, so I just want to forewarn you, these are
the types of individuals you're gonna be working
with, and they're gonna fight with you that this should
be filing tax returns, and you're gonna tell them the
IRS won't accept tax returns. Well how do we know who the owners are, how do we know there aren't more owners? Well the answer is if
there were more owners, then it couldn't be a disregarded
LLC because disregarded LLC means there's only one owner. If there's more than owner, then it has to file a tax return, get it? They don't, so rather than
put yourself through that heartache and stress of having to work with these individuals
who do not understand you and your complicated life and
how you put things together, pull the money out two months in advance.

funding real estate investments

It's the simplest way to do it. Now, when they look, they're
gonna see that the money is in your name, so if this was a
situation where you're buying residential real estate, you're
using traditional financing, how about if I'm using
commercial or I'm gonna be buying something in the name of the LLC? Well in that case, we're gonna
do it a little different. What we're going to do is set
up our LLC that we're gonna make the offer in, so set
up this LLC right here, get your bank account set
up in it, and if I knew that I'm going to need, let's
say, $100,000 for my down payment up here, then what
I would suggest you do is you take the $100,000
out of this account as a distribution, so you
pull that down to yourself, distribution 'cause you're the
member, and then you're gonna contribute it to this LLC, so
that would be a contribution.

All right, and again, do
it two months in advance. All right, always make
it two months in advance of making the offer, and the
reason being is that they're gonna ask for two months of
bank statements for that LLC as well, and we want to see
that money in the account on those two months of bank
statements so they know that that money's been in there
and it's been seasoned. This is very, very important
when you're putting these structures together. If you are going to be
using a self-directed IRA or a QRP to buy property in
an LLC, again, same principle. If there's financing involved,
which you should never do financing in a self-directed
IRA because it's taxable, but if you're gonna use a
nonrecourse note, again, get the money into the
LLC two months in advance.

So when it comes to financing
in LLCs, it can sometimes be problematic if you don't
move the money the right way ahead of time before
you're making your offer so they can see where those
funds are coming from. Another thing to keep in
mind that I just touched on when working with underwriters
as well, LLCs I like to have them run through a holding company as you've seen in my other videos.

Let's say that I have multiple LLCs set up for my real estate, this
is my rental real estate, then I like to create this
holding company right here. This is typically gonna be
Wyoming or it could be Delaware if I'm dealing with commercial,
and then I'm gonna have all of these LLCs owned by this one. This one down here I like to
treat as a partnership, right. I want it to file a tax
return, and it gives me a K-1, so I want to get that K-1 onto my 1040.

Again, this is something
that lenders or underwriters, when they look at a tax return
for a real estate investor, it's gonna give you a
greater degree of credibility with your investing when you're
pulling it through a K-1, your rental income,
versus Schedule E page one where you just have a bunch
of properties listed there because it indicates to
them that you've taken your investing to another
level and you've made it more of a business, and so
that translates, again, into their little box scenario for them, so I preferred it to run it this way. So lending can be complicated,
there's no doubt about it. With Dodd-Frank they, well
Barney Frank first screwed it up back in the day, and
then he tried to fix it, and they went overboard,
and I know how frustrating it can be, I deal with it myself. Every time I got for
a loan, I just cringe, I keep my loan packet
available on my computer, I know everything they need ahead of time, and still they come up with
more information and say, well we need to know how much
you spent on wine last month because that's a new
calculation we have, so anyways, don't let the frustration get you.

There's tremendous
opportunities in real estate, interest rates are low. Go out there, take advantage
of it, just make sure you're setting yourself up
the right way so you can close without any hassles. My name's Clint Coons with
Anderson Business Advisors, and in this video we talked about lending and limited liability companies. (upbeat music).

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