My question is how to treat real estate on a personal balance sheet when the real estate is owned by an LLC and the LLC is partly owned by the person in question. Our spreading software tosses out closely held businesses, so if the real estate is listed as an LLC, the borrower is getting no credit for the value of the land/building owned. Should it just be listed as real estate owned instead?
An LLC formed solely to own real estate is, in my view, fundamentally different than a business operated as an LLC. And how it is shown on the tax return depends on whether it is owned by one person or by more than one.
RE is owned by a one-owner LLC. It will be reported on their Schedule E as if they owned it personally. They may not even show it as owned by the LLC on the balance sheet and more likely are listing it on their RE owned schedule as if they own it personally.
RE is owned by a multi-owner LLC. I would ask how you treat it if I own half a piece of property with my sister as a tenant in common. If you would count my half as RE owned and count my half of the mortgage against me, then it should not be any different if we have it set up as an LLC. If you need to put the borrower half on the RE owned schedule and note what you are doing, that makes more sense to me than ignoring it because of the ownership type.
As for cashflow, again I recommend you treat it as if it were not owned by an LLC. For several owners, you include the borrower/guarantor’s share in his/her cashflow.
Of course, you are always obligated to follow the guidelines of your bank but the first half of that word is ‘guide’. Some banks consider guidelines guides and others consider them hard and fast rules.