9 Reasons Why a Delaware LLC is Preferred | Investment Real Estate LLC
There are opinions when it comes to a best state to form your investment real estate LLC. When looking for commercial lenders, often they require borrowers to form a Delaware LLC. The advantages on why a Delaware LLC for investment real estate are clear.
Benefits – Why a Delaware LLC
Here are 9 reasons why a Delaware LLC is preferred by commercial lenders:
- Delaware General Corporation Law.
- Delaware is generally considered pro-business.
- Delaware keeping business laws up to date.
- The technology, easy access to services, and information stored electronically.
- For tax purposes.
- Delaware’s reputation to corporate law.
- The attitude towards corporation law.
- The efficiency of the law.
- Start up costs.
- Annual fees and maintenance.
Forming a Delaware LLC for an Investment Real Estate LLC
Once you are ready to form an LLC, a company can be paid to set up a Delaware LLC.
You can set one up on your own through the division of online services for Delaware. It is as easy as following the how to form on the Delaware’s corporation website.
- It is very common for commercial investors to give interest rate incentives because they prefer a Delaware LLC.
Documents for Investment Real Estate LLC Mortgages
- Articles of organization – also known as the certificate of formation.
- Typically contains: LLC name, member’s and manager’s information, registered agent’s information.
- Operation agreement – outlines the ownership and members duties
- Form W-9 is often a required document.
- Company organization chart – often explains any organization ownership in the company.
- Foreign qualification documents for the LLC if applicable.
Investment Real Estate LLC Mortgages
When debt-to-income is too high for investment properties, there are debt-service coverage loans. Investors often prefer these mortgage because they also can close in an LLC or corporation. Debt-service coverage loans go off of the cash flow of a property.
Calculating debt-service ratio (DSR) is as easy as:
- Adding principal, interest, taxes, insurance, and home owners association dues.
- The calculation for this ratio is the proposed rental income divided by the full mortgage payment.
- Properties must cash flow to qualify for better terms, but there are investor no ratio loans too.
- Must meet conventional appraisal standards, but there are loan programs for properties with deficiencies.
Fix and flip loans are for real estate investors looking to buy and rehab a property to sell or hold. New construction loans are similar to fix and flip loans. There are line of credits available for both fix and flip and new construction loans.