Purchasing real estate in Florida under an entity name, such as a limited liability company (LLC), corporation or trust, offers many legal protections and advantages including personal asset protection, privacy and tax advantages, among others. Despite these advantages, there are some equally noteworthy considerations to take into account, especially when financing the investment, as the process for securing a loan as an individual differs from the financing scrutiny an entity goes through.

Financing Considerations for Entity-owned Real Estate in Florida

Owners who are not purchasing the property with cash or capital contributions from other LLC members may find it more challenging to secure a loan under an entity. Financial institutions tend to consider entities riskier than personal loan applicants and may impose strict criteria, including larger down payments (often greater than 25-30%), higher interest rates and subject them to even more intense financial scrutiny.

Moreover, to be approved for a mortgage, personal guarantees will almost certainly be required – and maybe not just from you but from every member of the LLC. 

A personal guarantee is an agreement where an individual (typically the business owner or a principal of the company) personally commits to fulfilling all loan obligations if the business entity fails to do so. 

While it’s commonly a best practice to keep personal and business assets separate, lenders today typically require someone to be liable if things go south – and they want that person to be someone other than a business entity or LLC. A personal guarantee offers a higher level of protection for the lender and ensures that someone will have to pay up if the entity defaults on its loan agreement.

Be Prepared for Detailed Documentation

If you plan to finance your entity-owned real estate investment, take proactive steps to make the process go as smoothly as possible. A few things you can do include:

  • Ensure your entity is structured appropriately for your business goals and that the formation requirements fulfill all Florida’s business laws.
  • Draft and file your entity’s articles of organization and other formation documents.
  • Build up your entity’s creditworthiness by establishing a financial history in the entity’s name.
  • Understand financial and tax implications and liabilities.

Investing in real estate in Florida under an entity name is common practice and can offer many benefits, but if you plan to finance the investment, be prepared for a few potential hurdles. Partner with a Florida real estate and corporate law attorney to ensure your entity is appropriately structured for your needs. Our attorneys at the Law Offices of Alex D. Sirulnik, P.A. can help with all this and more. Contact us today to request a free consultation.