Expert: Brian Bocchieri - 11/13/2007

Question
QUESTION: I want to buy a 3-4 units rental property at @750K.  Assuming that I put 20% down, would the loan be categorized as jumbo and higher rate?  I have enough in my home equity line that I can use as down payment.  Should I do that so I do not have to pay the loan @ jumbo rate?  My home equity line is currently @6.49%.  Or is there any better option?  

Please advice.  Thank you.

ANSWER: Thank you for your question.  
I am sorry but you will fall into the jumbo rate due to the size of the loan.

Because of the size of the deal 3-4 unit building you fall into the residential market, meaning you must personally qualify for the financing on you project.  At this point there is no method of getting around this that I know of except paying cash.  

Once you move to the larger deals $3 million + the property alone carries the burden of qualifying and it is not based on your credit score it is based solely on the properties cash flow.  This is the difference between the residential and commercial markets.  In many such loans the financing becomes non recourse meaning if the property goes into default the lender takes the property only and cannot come after you personally for any additional money.   

I hope this helps and helps you continue your investing as you can see as you  move up the size of your deals they do become easier a bit scary but easier.

Wishing you all the best should you have any additional questions please free to contact me again.

Brian Bocchieri

---------- FOLLOW-UP ----------

QUESTION: In you opinion, if I invest in real estate properties, should I use LLC or corporation?  I have got difference advices and I am so confused.  

Help!

Answer
Very good question,

In the deals I have been involved with we have always used LLC.  

One way of setting up your structure is to have one corporation then place each property you purchase within it's own LLC. under the corporation.  By doing this you have the ability to upstream profits for tax purposes and the protection of the corporation and the LLC.

Please let me urge you to seek legal advise before you do set up any type of corporate structure.  There are various ways to set up your organization depending on your goals, your assets, and your long range plans.  A good place to start is look up Drew Miles on the web he is a tax attorney and has a very good program regarding corporate structure and asset protection.

I have found it is easier to set it up right in the first place then try to fix it later.

Wishing you all the best

Brian Bocchieri