Property Grunt

Wednesday, May 03, 2006

LLC: The mark of the bubble beast?

The Grunt has heard on the wire that Bank of America has ceased all lending to all real estate LLCs. This is highly signifigant since no real estate investor in their right mind would ever purchase an investment property without an LLC and it is also indication of the current mood in the lending world.

There has been some rumblings that other banks may follow suit but nothing is official as of yet.

So why would banks be reluctant to lend to a real estate LLC? It is all about cutting their losses. If the s**t hits the fan, alot of banks will be stuck with a ton of non performing assets. Banks are in the lending business not in the real estate business therfore they are ill equipped to deal with a ton of foreclosures.

The LLC is the get the out of jail free crad for real estate investment which allows investors to be able walk away without further financial injury. Banks dislike this. They do not want to lend to anyone who is legally limited in putting their skin in the game. This is also another reason that banks will not lend to residental buildings that have less than 50% owner occupancy and is known to be a investment building.

As far as they are concerned, the more of a stake a buyer has in a property, the more likely they will move hell and high water to keep it and not let it fall into dissarray.