Key takeaways

  • As the name suggests, a limited liability company, or LLC, limits the liability of the owner(s) in the event of a legal issue.
  • Buying a home with an LLC can be useful for landlords, owners of multiple properties or public figures who value their privacy.
  • But it can be hard to get a mortgage loan for an LLC purchase, and it isn't usually necessary for a typical buyer.

Whether you’re looking to buy a house to live in or for investment reasons, you may wonder if you can do the transaction via an LLC, or limited liability company, rather than under your own name. You can, but it’s complicated — and the reason for your purchase is one of the main drivers in whether it’s a good idea or not. Here, we examine the complex pros and cons of buying a house under an LLC.

What is an LLC?

The acronym LLC stands for limited liability company. It’s a type of corporate structure that allows individuals and certain entities to come together as a business. The owners are known as members; it’s possible for there to be just a single owner as well, called a single-member LLC. Corporations, foreign entities, individuals and pre-existing LLCs can qualify as members of a new LLC. There are various regulations surrounding LLCs, both at the federal and state level, and forming one requires compliance with stringent requirements.

Buying a house with an LLC

It is definitely possible to buy a house with an LLC. Why would you want to? Well, as the name suggests, an LLC offers the advantage of limiting liability for the members within the company. “It means the LLC is a separate entity to the person [or people] who owns the LLC,” says attorney Chris Collins, founder of the Yugo Collins firm in Roanoke, Virginia. “This can be a huge advantage when trying to limit your exposure to a lawsuit.”

Individuals and other entities looking to shield their liability when purchasing property are a good fit for buying a house with an LLC. It can be particularly useful for owners looking to become landlords. To get the benefit, “the LLC, not individual members by name, should hold title to a property,” says attorney Andrew L. Schwartz, principal at Stein Sperling in Rockville, Maryland. “If the property is being rented to tenants, the LLC should be named as the landlord.” The separate legal identity of the LLC is key, Schwartz says, including having a separate taxpayer identification number and using a separate bank account to pay financial obligations.

Can you transfer a property you already own to an LLC?

Yes, it is possible to buy a property in your own name and then transfer the title to the LLC at a later date. But there are some factors to consider before doing so.

If the home is mortgaged, transferring the title to an LLC could trigger the due-on-sale clause and the mortgage acceleration clause, requiring a full repayment of the mortgage. Additionally, the mortgage and/or owner’s title insurance policy could be invalidated if the LLC is not wholly owned by you. Depending on your location, real estate transfer taxes could be incurred when transferring the title back and forth as well. Ultimately, it is best to discuss your plans with a tax advisor before making any decisions.

Financing an LLC purchase

Getting a mortgage to fund an LLC purchase can be tricky. They typically are not eligible for a traditional residential mortgage — loaning to an LLC is riskier for a lender than loaning to an individual, as it can be more difficult for them to recoup losses on a defaulted mortgage if necessary.

However, as LLC purchases become more popular, LLC financing is, too. “Mortgages for LLCs are becoming increasingly easier to obtain,” says Shmuel Shayowitz, president and chief lending officer of mortgage-banking firm Approved Funding. “Loans for LLCs typically require a 25 percent down payment, although there are programs available for lower down payments with certain restrictions and requirements. There are programs available for LLCs that will use the rental income of the property being purchased as income for qualification, and wouldn’t even require personal tax returns.”

The owners of an LLC may need to personally sign and guarantee the loan, Shayowitz says. By doing so, their personal credit scores would determine eligibility and interest rate.

However, while LLC members who personally guarantee the loan may have more options and potentially secure a better interest rate, doing so could also remove some of the safeguards buying a house with an LLC provides. Specialty mortgage-loan programs may be a better fit for LLC home purchases, says Daniela Andreevska, a former VP at Mashvisor, an investment-property platform. These can include “hard money lenders, private money lenders or short-term loans with higher interest rates,” she says.

Advantages of buying a house with an LLC

  • Asset separation: This is a primary benefit of doing any kind of business as an LLC, whether it’s real estate–related or not. “An LLC protects its owners’ personal assets,” says Rick Wallace, a property investor and founder of LLC Dojo. “In the event of legal action, the only assets that are at risk are the assets within the LLC.”
  • Limited liability: The LLC is also the sole entity responsible for liability. “If you own numerous properties, it is a good idea to establish individual LLCs for each property so that the only asset available in the case of a lawsuit is the individual property owned by the LLC,” says attorney Bona Doci, with O’Flaherty Law in Naperville, Illinois. “If one LLC owns all the properties, all those properties are subject to liability arising from each property.”
  • Privacy: If you want property anonymity, buying a home with an LLC is a good way to achieve it. When you buy with an LLC, your personal name isn’t attached to public records or other documentation. This can be especially helpful for high-income or high-profile individuals (like celebrities) and those who purchase high-value homes.
  • Tax benefits: People who incorporate as LLCs to buy a house can take advantage of a number of tax benefits. Most prominently, LLCs offer a type of pass-through tax structure that eliminates double taxation. “Any taxes [on the property] will be accrued to the LLC only, and you will not need to pay personal taxes,” says Andreevska. “You can save a significant amount of money by avoiding double taxation and optimizing your tax situation.”

Disadvantages of buying a house with an LLC

  • Cost: Setting up and maintaining an LLC isn’t free. According to Wallace, the set-up fee can run a few hundred dollars upfront and, depending where the LLC is based, $50 to $100 annually for ongoing filing costs. Additional accounting work and annual tax preparation are also things to consider, while higher interest rates and additional closing costs also factor into the total costs of buying a home with an LLC.
  • Limited financing: Financing a home can be a challenge for an LLC, especially if a member isn’t willing to guarantee the loan. You will typically have to pay a higher down payment than someone buying a home as an individual, and there will be fewer incentive programs available. FHA loans and conventional loans sold to Fannie Mae or Freddie Mac cannot be obtained with an LLC. There may also be time-in-business requirements, which means you may have to wait a set amount of time after forming the LLC to even apply for a mortgage loan.
  • Loss of capital gains benefits: If the house you purchase with an LLC serves as your primary residence, you could miss out on capital gains tax benefits when it comes time to sell.

Bottom line

It is certainly possible to buy a house with an LLC. But unless you’re a celebrity or a real estate investor who wants to limit their liability in being a landlord, it’s probably not a good idea. For private individuals who are simply buying a home to live in, the drawbacks — particularly in cost and financing issues — outweigh the benefits.