Buying Rental Property in an LLC

Match the entity to the transaction

TQL’s business-purpose guidelines permit eligible LLC, partnership and corporation vesting. The entity’s purpose and activities must be limited to ownership and management of real property for the vesting entity.

Multi-level structures may be considered when documentation requirements are satisfied for each entity. A complicated organization chart should be reviewed early, not discovered at document signing.

Understand the personal guaranty

The guidelines require full-recourse personal guaranties from members or managers representing at least 25% cumulative ownership. A guarantor needs authority to sign the loan documents for the entity.

LLC vesting does not mean anonymous borrowing or no personal credit review. Discuss legal and tax consequences with your advisers; financing eligibility does not establish liability protection for your particular structure.

Build a document package that can scale

Prepare formation documents, ownership percentages, signing authority, tax identification and applicable good standing. The names used on the application, contract and title must align.

As the portfolio grows, keep the records for each property and entity current. New members, managers or ownership transfers can require a fresh lender or title review.

Coordinate the closing and the next acquisition

Tell the lending team whether the property will close directly in an LLC or whether you are considering a later transfer. A post-closing transfer is not automatically permitted under the loan documents.

• Articles of organization and operating agreement.
• Members, managers and ownership percentages.
• Good standing or the applicable new-entity documentation.
• Borrowing authority, tax ID and guarantor documents.