Important takeouts:
In general, buying a home from an LLC is generally recommended only for experienced real estate investors, not the average home buyer. You can buy a home under an LLC, but the pros and cons of doing so are complex and need to be considered carefully. This method of purchase is most useful for landlords, people who own multiple properties, or public figures who value privacy.
If you’ve ever rented a house, whether it’s KS, or Washington, D.C., you may have an LLC or limited liability company listed as your landlord. This is common in rental properties, but some buyers also explore using LLC to buy a home.
Buying a home with an LLC is beneficial in certain circumstances, providing privacy and limiting liability to the owner. However, due to related drawbacks and complexity, this makes this an unattractive process for the average home buyer. We have analyzed the pros and cons of buying a home at an LLC to help you determine if it was the right choice for you.
What is an LLC?
Limited Liability Company (LLC) refers to a specific type of business structure. It creates a legal separation between the owner’s assets and the company’s assets. This means that if an LLC is borrowing money or gets caught up in legal trouble, your personal belongings (like your car, savings, home) are generally protected. Only money or property owned by the LLC is at risk.
Can I buy a house under an LLC?
Yes, you can buy a house under LLC. This is not recommended for typical home buyers, but it can be a wise option for real estate investors and landlords.
There are many complexities to not only buy a home with an LLC, but also start an LLC itself. It is important to consider the pros and cons and talk to a tax professional before making a decision.
Benefits of buying a home with an LLC
There are several reasons why someone wants to buy a house under an LLC. Some advantages can save you money and provide you with separation of personal and professional investments. Others may provide privacy and peace of mind to some buyers.
Liability Protection: As the name states, an LLC limits any liability that can be confronted legally or financially. The LLC is the sole responsibility, not personally responsible for any obligation, legal action or other liability related to property. More Privacy: LLC names are listed in public documents rather than your full name, making them a good option for famous individuals and those who buy high value homes. Tax Benefits: LLCS uses a “pass-through” taxation system. This avoids double taxation and reduces the overall tax burden on owners. Separation: Using an LLC separates your personal assets from your business assets. In the event of a lawsuit, your personal assets cannot be considered part of the company. It also helps to separate your personal life from your business life. Easy to invest: Real estate investors who want to manage multiple properties and build a portfolio can also integrate under LLCs or invest in multiple other LLCs.
Disadvantages of purchasing from LLC
While not generally recommended for typical home buyers, there are still drawbacks to consider whether buying a home with an LLC is a sensible choice for you.
Getting a Mortgage is Difficult: Securing an LLC mortgage is more difficult than the average home buying process. Lenders view these as riskier investments, and often require higher declines and interest rates. Limited Funding: There are fewer loan types available to LLCs as they are not covered by regular mortgages, such as FHA loans and traditional loans. Personal Guarantee: Lenders may require a commitment, personal guarantee, to repay the loan themselves if the LLC is the default. This increases personal responsibility and eliminates some of the aforementioned benefits. Higher Cost: In addition to higher declines and interest, the LLC itself can be expensive. Establishing a company can cost between $35 and $500, depending on the state, with some fees incurring annual fees. “Putting through the veil of a corporation”: This legal concept could be enacted by a court if an LLC finds that it does not abuse the corporate structure or maintain proper separation between individuals and businesses. It places the owner personally liable for the company’s debts and obligations. No capital gains benefits: Some homeowners who sell their primary residences will receive capital gains tax benefits, but investment property through LLC will remove you from them.
How to buy a home with an LLC in 5 steps
If you are considering the pros and cons and are ready to buy a home with an LLC, there are five steps:
Form LLC: Review state guidelines, submit required documents and submission fees, and obtain the employer’s identification number (EIN) from the IRS. Open a Business Bank Account: Maintain a clear distinction between business funds and personal funds by opening another business bank account with an LLC. Securing a Mortgage: Search for lenders with experience with LLCS. While traditional lenders may be more hesitant, portfolio or asset-based lenders may be more flexible options. Purchase properties: Once you find the appropriate property, close the house using the LLC name. This appears as the owner of all closed documents. Get the right insurance: Be sure to check your liability insurance in addition to your home insurance. This protects LLC from the costs associated with being legally liable for any injury or damage to property.
It’s not everyone who buys a house with an LLC.
While the average home buyer doesn’t need to set up an LLC to buy a home, there are some cases where it can benefit you. If you are a carrier from property investing in real estate or renting your home, using an LLC can provide protection from tax benefits and liability. Be sure to consider the complexity and drawbacks. Talk to a financial or tax professional before making a decision will help you understand the best route for you.
FAQ for buying a house at LLC
Can I get a mortgage from an LLC?
You can get a mortgage from an LLC, but it is often more difficult to get approved. These are riskier investments for lenders, so they often require a higher decline and higher interest rates.
Who should buy a house at an LLC?
Experienced real estate investors, multiple property owners, and public figures who want privacy from public records are ideal candidates to buy from an LLC. I don’t recommend it to the average home buyer or anyone who is not used to investing in real estate.
Can I buy my own house and move it to an LLC?
You can move your home to an LLC later, but this can be particularly complicated if you have a mortgage. A mortgage home moved to an LLC can cause both sales deadlines and a mortgage acceleration clause, which requires immediate repayment of the mortgage.
What properties can I buy from LLC?
LLCs can purchase a variety of properties, including rental properties, commercial properties, and residential properties. It can also be used to buy fixer upper homes for flipping if it is part of your business.
Can I live in a home owned by an LLC?
Yes, you can, but I don’t recommend it for major housing. If your LLC is not clearly separated from your personal finances, there may be complications of mortgage insurance, tax implications, and the likelihood that the court will “pull a hole in the corporate veil.”
