What is a Delaware Limited Liability Company (LLC)?
A Delaware limited liability company is a business entity designed under the Delaware LLC Act.
Benefits of a Delaware LLC
- Tax benefits
- Simple business entity formation process
- Low startup fees
- Minimal requirements
- Low annual fees
- Protects personal assets from creditors
Why should real estate investors form a Delaware LLC?
Most lenders require real estate investors to form a Delaware LLC specifically for the property or properties on the loan or line of credit. A Delaware LLC protects both the borrower, lender, and the assets. Most private lenders will require borrowers to form a new business entity. Especially private lenders that deal with large real estate loans. The most recommend business entity by lenders is a Delaware LLC.
Business Entity Requirements
Lenders will require the business entities tax identification number (EIN), articles of organization, proof of good standing, tax returns, organizational chart, and the last three months of bank statements.
What is a blanket / portfolio loan?
Blanket / portfolio loan are popular amongst established and experienced real estate investors looking to place a portfolio of properties under one mortgage. This loan type can include different property types such as single family residential (SFR), multifamily, townhomes, condominiums, and studios.
Why do lenders require a newly formed Delaware LLC for blanket / portfolio loans?
Lenders want to ensure that all the properties being financed under the blanket / portfolio loan are the only assets owned by the newly formed Delaware LLC to decrease their risk exposure to other lenders. If the borrower defaults on a loan unrelated to the assets owned by the newly formed Delaware LLC, the business entities assets will remain safe and protected.
Benefits of Blanket / Portfolio Loans
- One loan approval process
- Lower closing fees
- Easier to manage properties
- One mortgage payment
- Combination of equity
Disadvantages of Blanket / Portfolio Loans:
- Down payments are no lower than 20% of the combined purchase price of the properties
- Higher interest rates
- Short term loans
Lenders May Require a SPE Delaware LLC
Lenders prefer the formation of a single purpose entity as it decreases their risk exposure to the borrowers’ assets and liabilities which the lender isn’t providing financing. Single purpose entities limit the lenders risk exposure as real estate investors often have numerous loans and project going on at the same time
