Investor's Loan Guide by Graham W. Parham

eside in even if your LLC is set up in another state, there could potentially be
an annual fee that is paid to the state. Another fee would be the cost of filing
separate tax returns for the LLC if you use an account, which I absolutely
recommend if you’re dealing with rental properties. In addition, the state
franchise fees would also be another cost incurred depending on the gross
profit of the LLC. The IRS has certain thresholds that they use for these franchise
fees. Many investors starting off do not realize the reality of the impact of any
fees against their bottom line until it’s too late.
How it affects your financing
To me, this is the biggest hurdle
for most lenders to overcome.
Many investors “Miss the forest
for the trees” and don’t realize
that owning properties in an
LLC can create problems for
future financing. Most 1 to 4
residential loans are delivered
to Fannie Mae and Freddie
Mac. Fannie Mae and Freddie
Mac’s guidelines do not
support “Entity Vesting.” Entity
Vesting is when the rental
property is titled in anything other than the individual borrower’s names i.e.
LLC’s, S-Corps, or Partnership. First-time investors that have been educated to
set up an LLC for their new real estate business do not realize that this can be
a problem. In addition, the same investors will set up individual asset accounts
in their LLC names to support future purchase transactions. These funds cannot
be honored as personal assets because they are in a business. There are
special circumstances that these funds can be honored, but this requires a
complete 12-month analysis of the LLC’s profit and loss. This is totally up to an
underwriter’s discretion.
I highly encourage any investor that is looking real estate investing to
keep the bulk of their assets in their personal account for underwriting
purposes.
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