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.
- 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.