If you want to obtain real estate financing without private liability, you should use a Immobilien-GmbH or a Immobilien-GmbH & Co. KG. But also the request by such a real estate company can certainly meet the demand of potential lenders for a personal guarantee of the shareholders. But that is something that can be responded to in the negotiations. Thus, in the case of sufficient assets in the real estate company, an exclusion of private liability is in any case more likely than if it is a company without sufficiently large assets. Nevertheless, one can also strive for at least a partial exclusion of private liability within the framework of a loan agreement. Finally, the value of the property increases with progressive repayment, so that the amount to be hedged decreases. In addition, the credit rating also plays an important role. For example, a time limit for private liability can be agreed to meet this circumstance.

1st real estate financing without private liability – Introduction

A person who wants to purchase a property by taking out a loan for it from a bank is liable for any interest or repayment losses with his private assets. A wide variety of reasons can occur which can lead to such private liability. It is important that under certain circumstances even very personal interventions can reach into private life. This can happen, for example, if you have to use the home to service the debt. Because then a move is also quite likely. This example alone shows that private liability should be avoided if possible. However, this also depends on the lender. Because a private liability of the borrower is very much in his interest. Finally, the maximum amount of collateral is available.

So here we ask the question of how to achieve real estate financing without private liability. And we will answer that question immediately.

Real estate financing without private liability – the personal guarantee

Anyone who has read one or the other article here knows that we have often reported on a real estate GmbH in connection with real estate. A Immobilien-GmbH & Co. KG can also make sense. But what matters right now is the fact that a GmbH or a GmbH & Co. KG offer the advantage of excluding a private liability. In the event of liability, the company is liable with its assets. On the other hand, liability for infringement of private property can only be considered in special cases. This makes Immobilien-GmbH or Immobilien-GmbH & Co. KG the ideal solution to achieve real estate financing without private liability.

This is also known by the banks, which usually take over the financing of real estate acquisitions. But such a disclaimer is hardly in their interest. Finally, a Immobilien-GmbH or a Immobilien-GmbH & Co. KG, apart from the property to be acquired, usually has no additional assets that could be accessed without restriction to service debts. Thus, banks from their powerful negotiating position usually demand that a borrower in the role of a managing director of such a real estate company enter into a private guarantee. This puts us back in private liability, which we originally wanted to avoid in real estate financing.

Requirements for real estate financing without private liability

Real estate financing without private liability: the criterion of creditworthiness

In fact, in real estate financing, the credit rating of the borrower has great weight. This applies to both private individuals and real estate companies. If you have just founded such a real estate company, then it is in the nature of the matter that potential lenders take a look at the creditworthiness of their shareholders due to the lack of their own credit rating of the real estate company. After all, it is they who will lead the fortunes of the real estate company as managing directors. Accordingly, the wish of the lending bank for a guarantee by the shareholder-managing directors is understandable.

If such a real estate company has existed for a long time, then its own credit rating is important for lending. Here, real estate financing without private liability by the shareholders is the more likely, the greater the credit rating of the company.

Real estate financing without private liability: the criterion substance

Even a little more important than the credit rating is the substance that you can show as a private person or real estate company when requesting real estate financing. After all, the substance of assets is the only means that has significance as collateral in the case of cases for the banks. With the credit rating you can at best assess how high the risk of default may be.

So banks look at the assets of a real estate company when financing real estate. If the real estate company already has several properties that can compensate for a potential credit default in their cumulative value, it is often much easier for banks to refrain from private liability in real estate financing. However, if there is still no or only little substance in the real estate company, banks expect to assume a guarantee to hedge their risk.

Real estate financing without private liability: supply and demand

Another option is to get as many offers as possible when choosing the bank. The more negotiations you have, the greater the probability that you will find a bank that accepts real estate financing without private liability. This may be accompanied by other conditions, but if the exclusion of private liability is very important for the borrower, then there should be a possibility of reaching an agreement with the bank.

As a small side effect, one can also consider the increased experience in conducting such negotiations. So you learn from this what banks pay particular attention to and how they can also be mild with regard to the question of private liability. For some projects, such as real estate financing without private liability, you also need tact. And if you would rather hire someone who can offer this advantage in addition to experience and a lot of expertise, you may want to use the services of an investor advisor.

4. Further possibilities for real estate financing without private liability

So far we have considered some prerequisites that can enable real estate financing without private liability. But if the avoidance of private liability is actually excluded, then there are at least some ways to limit it.

4.1. Property financing without private liability – limitation according to the amount

First of all, one can negotiate with the banks whether private liability, if it is unavoidable, can be limited to a certain amount to be fixed by contract. After all, part of the security by the property to be acquired is already available. Of course, it is assumed that there is no event that restricts the property to be acquired as security. For example, a fire or a severe weather could unforeseenly eliminate the security believed to be safe. But there are also insurances for this, provided they are prepared to cover damages of this kind in individual cases. In any case, the borrower would then only take over the part of the security under a guarantee that the bank would probably consider necessary to cover the remaining amount. With 110% financing, this is quite understandable.

This is accompanied by the idea of a merging private liability with increasing repayment. Because the larger the share of the repaid loan with progressive repayment, the smaller the share of private liability should be. This brings us to another aspect, namely the time limitation of private liability.

4.2 Real estate financing without private liability – time restriction

In addition to the time-related restriction of private liability due to the extent of the repayment, one can also generally try to exclude a time-related private liability. For example, one can turn off the credit rating disclosed up to a certain point in time. Should this probationary phase be successful, the scope of private liability would be automatically adjusted by the guarantee or even phased out completely.

4.3. Real estate financing without private liability – object-related restriction

In addition, private liability could be limited to certain assets. In this way, for example, the home can be excluded from private liability. This would therefore also amount to a partial exclusion of private liability. In any case, you have influence on the objects that you make available as security. In addition, this approach could also be combined with a time limitation of private liability. Thus, both the risk of lenders and borrowers decreases over time.

Real estate financing without private liability – our conclusion

Real estate financing without private liability is quite possible with a Immobilien-GmbH or Immobilien-GmbH & Co. KG. However, certain conditions should be met. So it makes sense in any case to be able to show a good credit rating. In addition, lenders accept an exclusion of private liability only if there is sufficient substance in the real estate company to hedge the risk of a credit default.

However, if private liability is unavoidable, you can at least try to limit the scope. This applies both to the financial and to the temporal extent of a then partial private liability. The restriction of private liability can be designed in a very individual way. Ultimately, however, it also depends on the willingness of the respective negotiating partners to find such a solution. Professional support from experienced investor advisors in this field can be helpful.