My brother-in-law and I formed a corporation to invest in residential rental properties. We have found a couple of duplexes that we like and our offer for them has been accepted. The question is: Is the type of loan we get governed by the entity we are (e.g. corporation, llc, etc.) or by the type of property (single family residence, duplex, apartment building, etc.)? What is the best course of action - hold the properties in our individual names or in the corporation's name?

Thanks.

Lmc:

The type of loan is governed by the type of borrowing entity when you are talking about “primary residence loans”. Remember that the government encourages home ownership and by creating a secondary market for these loans it helps people get houses. Duplexes do qualify for these types of loans if you are going to occupy one of the units. Of course most of these loans have occupancy clauses or occupancy covenants, which require that you live in the house for a period of time after closing. People have been known to break these clauses, but they would be making their agreement.

On the other hand, approaching this for what it truly is ”an income producing property loan of a commercial nature”. The type of borrowing entity has no effect on the way this would be underwritten. If you are the borrower is ok, if the corporation or LLC is the borrower then that is ok also as long as we get your guarantees.

The type of entity plays its larger role in the liability issue and a minor role in the tax issue as there are ways to avoid “double taxation”.

Hope this helps

Thanks. That helps a lot.

I understand then, that if I were to purchase a quadplex and occupy one unit, filling the others with tenants, that I would qualify to apply for an FHA loan?

Do you have any knowledge as to whether county or city programs that kick in an add'l loan for low income home buyers could also apply here?

Pam:

”I understand then, that if I were to purchase a quadplex and occupy one unit, filling the others with tenants, that I would qualify to apply for an FHA loan?”

I am not a residential lender. I suggest you consult one. My educated guess is that yes, you can probably apply for FHA insurance if you meet the requirements. The amount of the loan and the loan-to-value are unknown to me.

Do you have any knowledge as to whether county or city programs that kick in an add'l loan for low income home buyers could also apply here?

Well, I don’t know where you live Pam …. So that kind of makes it difficult to find out. Even if I knew where you live or you lived in my County/City, I could not tell you. I am sure that your State has some kind of office dedicated to “house affordability” or even better try the HUD website and see if they have any information.

Sorry I could not be of more help.