The scenario:

My partners and I (3 of us total) are looking to invest in our first property (residential) in the metro Atlanta, GA area. We're looking to buy/rehab/sell this property. We do not want to have this property in any one of our names and two of us have an IT company that has been in business for 3 years so we thought about the commercial loan through, but from what I understand it is also possible to receive a Hard Money Loan through the business as well. We're in the process of forming another company that will include all 3 of us and will be specifically focused on all types of investments, but the 2 of us with the IT company have no problem getting a loan in our (company) name.

My question:

Which type of loan would you recommend, Hard Money or. Commercial?

Thanks in advance

Assuming you qualify a commercial loan is prefereable aslong as you can get one with no prepayment penalty (since you intend to flip the property)

Hard money is usually the option of last resort. Hard money is for borrowers who cannot otherwise qualify for financing, be it residential or commercial. It is characterized by low relative LTV's (usually 65% or less), high interest rates (12-18%) and high fees (2-7 points).

One other thing to keep in mind. The corporation that will own and guarantee the mortgage note does NOT have to be established or what's known as "seasoned". It is not the corporation that is looked to for financial strength. It is you as individual guarantors and your personal assets that will be looked to in the event of a default. Inmy opinion it wouldbe a bad idea to put it in your exiting company's name. The IT business would then be at risk in the event of a default or lawsuit. Start a new corp. with all three of you as shareholders for your real estate investments.

Commercial LO covered it pretty good.

If you give specifics, we can even tell you how easy or difficult it would be. With residential property, I would prefer to stay residential {as in lending } to avoid a higher down payment.

Commercial LO,

You say "It is you as individual guarantors and your personal assets that will be looked to in the event of a default." So does this means that our names/credit will be tied to the property/loan?

If so, let's say we form the investment firm (3 of us as shareholders) then invest in realestate and not use the IT firm, will all three of our names/credits be tied to the property/loan or is it only possible for just one of us to be tied to the property/loan. Our main purpose for seeking a commercial loan in the business name is to have the property/loan in the business name and not in any single person's name. Therefore the business will be liable for the property/loan.

The loan will be in the corporation name. It will not show up on your individual credit reports, except in the event of a default or late payments. You will be asked to personally guarantee the loan. In the event of a default where the sale of the property does not cure the debt on the building, your personal assts become fair game. This is true for anyone who is listed as an officer in the corporation. A property and mortgage held in a corporation offers you some protection from liability, but will not absolve you individually of responsibility for repayment of the debt.

What you are seeking is a non-recourse loan. That is where no personal guarantees are required. The building and the corporation are soley responsible (except for the standard carve outs of fraud, misrepresentation, environmental etc) for the loan. Unfortunately non-recourse loans are not available for small loan amounts, rehabs, construction and for residential properties (i.e. those with less than 5 units)

A lender will look to all three of you for personal financial strength and credit history in determining whether to grant the loan. This is true whether the corporation is 1 day old or 100 years old.

Commercial Lo,

So basically there is no way for us to get a loan in the business' name (to protect us individually) for a residential properties with units less than 5?

Sorry, I have never come across any lender that will do non-recourse on 1-4 units or with loan amounts less than $250,000.