Is there anyway you can take out a residential mortgage for a business that owns 3-4 unit rental properties? If not, it seems like buying 3-4 unit rental properties no longer makes as much sense with the new tax code. You either need to choose between being a business that can write off interest and property taxes or getting an 80% LTV loan at the residential rate. You can still get the best of both worlds if you only intend to own one property but that limits you to a $700k mortgage and you aren’t getting the full tax benefit if you already pay a lot in state income tax.
Anyone have any experience in how this side hustle has changed since the new tax laws went into effect?
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Why would you not want to be the business? You'll be putting more equity in at the beginning vs residential mortgage, but more structuring options for the commercial loan. Aside from reducing some liability, that’s the point of a corporation—a legal entity that exists for tax planning.
Sorry for the very late reply here. But I would prefer to do a residential loan, where else are you going to get an 80% LTV loan that cheap? An 80% LTV loan at 4.5% can really juice your returns vs. 65% LTV at 5.0%.
How did this change under Trump? LLC/commercial financing has been a point or so higher with lower LTV
Why can't you buy a 4-Unit Deal via Pass Through Entity? Can still write off interest and Property Taxes.
Also sorry for the very late reply. Can a pass through entity get a residential mortgage? I thought those had to be made to an individual.
They cannot
Back in the S&L days you could get resi loans to an entity, but no more. When I did residential in the late 90's we had clients sign two grant deeds at closing. One taking out of the trust for the loan file and a second one putting it back in the trust or entity.
I would just get the loan in your name, put the property in an LLC and take the deduction.
When you deed the property the second time into the trust or entity, doesn't that trigger some kind of acceleration clause with the lender? Like you've mentioned, I've heard people talk bout how they did it in the 90's but I have yet to actually meet people who have been able to transfer to an entity without completely cancelling out the favorable financing they got as an individual or just being told they would have to completely refinance.
No...that's not how resi works.
EDIT: There could be potentially negative impacts to investors from the new tax law but it is a deal by deal analysis. The 163(j) real property or trade election impacts losses by changing depreciation from 27.5 to 40 years if you make the election, but limiting total interest deductions if you don't make the election. I heard the actual text is over 500 pages so I'd recommend doing some research yourself if interested.
Hope this helps. I've never owned a rental property myself but plan to buy one soon. I've worked in real estate finance/asset management, mostly multifamily, for a few years.
Spot on, best bet if its non-owner occupied rental properties you can get a term loan (multi asset cross collateralized loan) from a loan originator outside the regular banks, put them in an SPE under an LLC for tax purposes and legality of equity/mortgage deed/first lien for the orginator. As long as its non owner occupied then you should be good to operate under regulations. Problem is your LTV will probably be between 65 and 75, interest rate between 5 to 8, and will probably need recourse if these are your first assets. Debt has to cover usually at least at 1.2x DSCR.
Happy to help as well
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