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Can you buy a house with an LLC? Should you?

New contemporary home with front lawn, evergreen tree, flowers and shrubs.
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New contemporary home with front lawn, evergreen tree, flowers and shrubs.
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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 pros, cons and complexities of buying a house with 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.

Why would you buy a house with one?

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.

Getting a mortgage for 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, marketing director 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.

Buying a house with an LLC: Pros

Asset separation and limited liability

These are the main benefits 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.”

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

“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.”

Buying a house with an LLC: Cons

Cost

Setting up and maintaining an LLC isn’t free. According to Wallace, the set-up fee can run a few hundred dollars up front and, depending where the LLC is based, $50 to $100 annually for ongoing filing costs. Annual tax preparation is also something 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 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 have fewer incentive programs available.

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 definitely 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.

Written by
Mandy Sleight
Insurance Contributor
Mandy Sleight has been a licensed insurance agent since 2005. She has three years of experience writing for insurance websites such as Bankrate, MoneyGeek and The Simple Dollar. Mandy writes about auto, homeowners, renters, life insurance, disability and supplemental insurance products.
Edited by
Senior real estate editor
Reviewed by
Senior mortgage loan originator, American Fidelity Mortgage