How to Finance Rental Property in an LLC

Most investors know they should hold rental properties in an LLC. The problem? Conventional lenders won't close a mortgage in an LLC's name. They require a personal borrower on title, which defeats the entire purpose of forming the entity. DSCR loans solve this completely — they're designed for entity-based lending and close directly in your LLC from day one. No title transfers, no due-on-sale risk, no workarounds. This guide covers how LLC financing actually works, what it costs, how to set up your entity correctly, and the tax and insurance details you need to get right.

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Why Hold Rental Property in an LLC?

An LLC creates a legal barrier between your rental property and everything else you own. If a tenant slips on an icy walkway and sues for $500,000, that claim hits the LLC — not your personal bank accounts, your house, or your retirement funds. Without an LLC, a judgment could reach all of it.

Liability protection is the biggest reason investors form LLCs, but it's not the only one. LLCs offer pass-through taxation, which means rental income and losses flow directly to your personal tax return without double taxation. They also simplify estate planning — transferring LLC membership interests to heirs is far simpler than deeding individual properties.

For investors with multiple properties, LLCs keep the books clean. Each entity has its own bank account, its own income, and its own expenses. If you ever need to sell one property, the others aren't affected. And if you bring in partners on a deal, the LLC operating agreement spells out everyone's rights without clouding the title on the property itself.

Can You Get a Mortgage in an LLC Name?

Yes — but not through a conventional lender. Fannie Mae and Freddie Mac require an individual human borrower on the loan. They don't lend to LLCs, corporations, or trusts. If you walk into a bank and ask for a mortgage in your LLC's name, they'll tell you to apply personally.

DSCR loans are different. These are non-QM (non-qualified mortgage) products built specifically for investment properties, and they're designed to close in an entity's name. The LLC goes on the deed and on the mortgage. Your personal name doesn't appear on title at all — you sign as the managing member of the LLC, and the entity is the borrower.

The lender still checks your personal credit (typically the managing member's middle score), and you'll usually provide a personal guarantee. But the loan, the title, and the insurance are all in the LLC's name. That's the structure that gives you real liability protection.

Our residential rental property loan program closes in LLC names on single-family homes, duplexes, triplexes, and fourplexes across 48 states.

The Due-on-Sale Clause Problem

Here's the workaround most investors try: buy the property with a conventional mortgage in your personal name, then transfer the deed to your LLC after closing. On paper, you've got entity protection. In practice, you've got a ticking time bomb.

Nearly every conventional mortgage includes a due-on-sale clause. This gives the lender the right to call the entire loan balance due immediately if the property's ownership changes. Transferring title to an LLC is an ownership change. Technically, the bank could demand you pay the full balance — $200,000, $400,000, whatever it is — within 30 days.

Do banks actually enforce this? Rarely. Most of the time, they don't notice or don't care, as long as the payments keep coming. But "rarely" isn't "never." If interest rates rise and the bank wants to force a refi at a higher rate, the due-on-sale clause gives them the tool to do it. You're betting that they won't look — and that's not a strategy, it's a gamble.

There's also the insurance angle. If the property is deeded to the LLC but the insurance policy is still in your personal name, you've got a coverage gap. If the deed and the policy don't match, the insurer can deny a claim. Homeowners have lost six-figure claims over this exact mismatch.

DSCR loans eliminate the entire problem. The LLC is on the loan from closing day. No transfer, no due-on-sale exposure, no insurance mismatch.

An LLC creates a legal wall between your rental business and your personal assets.

How DSCR Loans Solve the LLC Problem

DSCR loans were built for investors, not homeowners. The entire loan structure assumes you're operating a rental business, and LLCs are a standard part of that business. Here's what the deal looks like:

Borrowing entity: Your LLC is listed as the borrower. The articles of organization and operating agreement are submitted as part of the loan file. The lender verifies that the LLC is in good standing with the state.

Personal guarantee: The managing member (you) personally guarantees the loan. This is standard on most DSCR products. You're still on the hook if the LLC defaults, but the liability protection runs the other direction — claims against the property don't reach your other personal assets.

Qualification: The lender uses your personal credit score (640+ minimum for most programs) and the property's DSCR ratio. No W-2s, no tax returns, no employment verification. The property's rental income is the qualifying factor. If it covers the mortgage payment, you're most of the way there.

Terms: 30-year fixed rate options are available, along with 5/6 and 7/6 ARM products. Loan amounts typically range from $75,000 to $2 million per property. LTV maxes out at 75-80% depending on credit and DSCR.

Should You Create One LLC or Multiple LLCs?

This depends on how much risk you're willing to concentrate in one entity. There are three common approaches, and each one has tradeoffs.

One LLC for everything: Simple and cheap. You form one entity, open one bank account, and file one extra tax return. The downside is obvious — if a liability claim hits one property, every asset in the LLC is exposed. If you own a $150,000 rental in Ohio and a $600,000 duplex in Colorado under the same LLC, a lawsuit on the Ohio property could theoretically reach the Colorado equity too.

One LLC per property: Maximum protection. Each property sits in its own entity, so a claim against one can't touch the others. The cost is more paperwork — separate bank accounts, separate tax filings, separate annual fees. For investors with 10+ properties, this gets expensive and time-consuming. State filing fees run $50 to $500 per entity per year depending on the state.

Series LLC: Available in about 20 states (including Texas, Delaware, Illinois, and Nevada), a series LLC lets you create individual "series" under one parent LLC. Each series functions like a separate entity for liability purposes, but you only file one tax return and pay one set of state fees. It's a middle ground that works well for growing portfolios. Check with a real estate attorney in your state to confirm availability and how courts have treated series LLC protections.

For most investors starting out, one LLC for your first few properties works fine. As the portfolio grows past 4-5 properties, talk to an attorney about whether splitting them up makes sense for your situation.

Non-Recourse vs. Recourse: What's the Difference?

Most DSCR loans are recourse, meaning the managing member signs a personal guarantee. If the LLC defaults, the lender can go after the guarantor's personal assets to recover the remaining balance. The LLC still protects you from tenant lawsuits and property-level claims, but it won't shield you from the mortgage itself.

Non-recourse DSCR loans remove that personal guarantee. The property is the only collateral. If the LLC defaults and the lender forecloses, they get the property — and that's it. They can't pursue your personal bank accounts, your other properties, or anything outside the LLC.

The catch? Non-recourse terms typically require a stronger deal. Expect 640+ credit, LTV of 65-70% (meaning 30-35% down), and a DSCR of 1.25x or higher. You'll also pay a slightly higher rate — usually 0.25% to 0.75% above recourse pricing. The lender is taking on more risk, and the terms reflect that.

Non-recourse makes the most sense for investors with larger portfolios who want to limit their total exposure across multiple properties. If you're buying your first or second rental, recourse terms with a strong LLC structure give you solid protection at a lower cost.

How Do You Set Up Your LLC for Investment Property?

Setting up an LLC for rental property is straightforward, but a few details matter for lending purposes. Here's the process:

Choose your state. Most investors form their LLC in the state where the property is located. You can form in Delaware or Wyoming for their favorable LLC laws, but you'll still need to register as a foreign entity in the property's state — which means paying fees in both states. For a single-state portfolio, just file locally.

File articles of organization. This is the formation document you submit to your state's Secretary of State office. Filing fees range from $50 (in states like Kentucky or Mississippi) to $500+ (in Massachusetts or California). Processing takes a few days to a few weeks depending on the state.

Draft an operating agreement. This is the internal document that governs how the LLC operates — who makes decisions, how profits are split, what happens if a member wants out. Lenders will ask for a copy, so have one ready. Even if you're the sole member, put it in writing.

Get an EIN. Apply for an Employer Identification Number through the IRS website. It's free and takes about five minutes. You'll need the EIN to open a business bank account and for the lender's closing documents.

Open a dedicated bank account. Run all rental income and property expenses through this account — never commingle LLC funds with your personal checking. Commingling is the fastest way to lose your liability protection in court. A judge can "pierce the corporate veil" if the LLC looks like a personal piggy bank.

Tax Implications of LLC Ownership

A single-member LLC is a "disregarded entity" for federal tax purposes. That means the IRS treats it as if it doesn't exist — all income and expenses pass through to your personal return on Schedule E, just like owning the property in your own name. You don't file a separate corporate tax return.

Multi-member LLCs are taxed as partnerships by default and file Form 1065. Each member gets a K-1 showing their share of income, losses, and deductions. You can also elect to have the LLC taxed as an S-Corp, which can save on self-employment taxes in certain situations — though this is less common for passive rental income.

The deductions don't change with LLC ownership. You still write off mortgage interest, property taxes, insurance, repairs, depreciation, and management fees. The depreciation schedule (27.5 years for residential) remains the same regardless of whether you or your LLC holds title.

One thing that does change: if you sell a property held in an LLC, you're technically selling the property, not the LLC membership interest (in most cases). The capital gains treatment is the same. However, selling the LLC membership interest instead of the property itself can sometimes avoid transfer taxes and title recording fees. Talk to your CPA about which approach works better in your state.

Insurance Considerations for LLC-Owned Properties

When the property is in an LLC, your insurance policy must name the LLC as the insured — not you personally. This is where the deed-transfer workaround falls apart for a lot of investors. If the deed says "Smith Capital Properties LLC" but the insurance policy says "John Smith," the insurer can deny a claim based on the mismatch.

For LLC-owned rentals, you'll want a landlord insurance policy (also called a dwelling fire policy or DP-3). Standard homeowner's insurance won't work because you don't live there. Landlord policies cover the structure, liability, and lost rental income if the property becomes uninhabitable due to a covered event.

Consider adding an umbrella policy on top. A $1 million umbrella policy typically costs $200 to $400 per year and covers claims that exceed your landlord policy limits. For investors with multiple properties, an umbrella across the portfolio adds a meaningful layer of protection.

When you finance through a DSCR loan in the LLC's name, the insurance, the deed, and the mortgage all match. There's no entity mismatch, no coverage gap, and no ambiguity about who's insured. It's clean from the start.

Refinancing Into an LLC: Moving Existing Properties

What if you already own rental properties with conventional mortgages in your personal name? You've got two paths to get them into an LLC.

Path 1: Refinance with a DSCR loan. This is the clean option. You refinance the existing conventional mortgage with a DSCR loan that closes in your LLC's name. The old mortgage pays off, the new one is in the LLC, and the deed transfers to the entity at closing. No due-on-sale risk because the old loan is fully paid off. You can even do a cash-out refi if the property has appreciated, pulling equity to fund your next purchase.

Path 2: Transfer the deed and hope for the best. You quitclaim the property from your personal name to the LLC while keeping the conventional mortgage in place. This triggers the due-on-sale clause on paper, but most banks don't enforce it. It's cheaper in the short term (a quitclaim costs $50-$200 in recording fees), but you're carrying risk the entire time the conventional loan is in place.

If you have strong equity and the property cash flows well, Path 1 is the right move. You'll pay closing costs on the refi (typically 2-4% of the loan amount), but you get a clean LLC structure with no due-on-sale exposure. For investors with multiple properties to move, our blanket loan program can consolidate several properties under one LLC loan, simplifying the process and reducing per-property closing costs.

Ready to Finance in Your LLC?

The structure is simple: form your LLC, get your documents in order, and apply for a DSCR loan that closes in the entity's name. No personal name on the deed, no due-on-sale risk, no insurance mismatch. Your rental business operates as a real business from day one.

Our lending team works with LLC borrowers every day. Whether you're buying your first rental, scaling a portfolio with blanket loans, or refinancing existing properties out of your personal name, we'll walk you through the entity requirements and get your deal structured right. Most LLC closings fund in 21-30 days.