Is an LLC needed for a hard money loan?
Many real estate investors look for a hard money loan in order to buy new properties. Hard money lending is typically used as a tool for completing real estate transactions. Many hard money lenders will expect, though, to have a corporation/LLC setup in order to handle the transaction. Typically, the preferred way of conducting the transaction is having an LLC setup, and then the hard money lender becomes one of the owners in the corporation.
Hard money lenders view LLCs and corporations are more credible entities, versus working with a real restate developer directly. If you don’t know how to create an LLC, it might be smart to speak to an attorney so you can understand how this business structure can help you – and why a real estate investor will expect it as well. Hard money lenders prefer a property be owned by a corporation because this helps prevent anything from happening to the property from other potential sources of litigation.
LLC/Corporations provide numerous forms of protections to hard money lenders which is critical. An LLC can help prevent potential foreclosures, in addition – the LLC can issue shares which can server as a form of collateral to a hard money lender. In addition, if you (as the real estate developer), have numerous properties – the LLC can help separate your various properties. This means that even if one of your properties fails, it doesn’t impact the other one. In addition, privacy is another great benefit of an LLC. The LLC can protect your assets(the property which needs funding), and make it difficult to track and monitor the various assets you have. If the property and title are held in the name of the corporation, a claim against the real estate developer personally won’t affect the property.