Buying a House Under an LLC
Real estate investors often purchase rental or investment properties under an LLC to protect their personal assets and themselves from liability. However, conventional and government loan programs do not permit an LLC to purchase a primary residence under an LLC.
To purchase a home under an LLC, you must form a limited liability company, obtain an EIN, open a business bank account, and secure financing in the LLC’s name. The LLC must then make an offer on the property, and the deed will be recorded in the company’s name at closing.
What is an LLC?
An LLC (limited liability corporation) is an entity which protects the owner’s personal assets from liabilities related to the business. An LLC also shields other businesses or LLCs from each other.
When you own an investment property, you risk having a tenant file a law suit and if they are successful, they could come after other assets that you own. By protecting the asset beneath an LLC, they are limited to the assets of that property alone and you are personal property and assets are protected.
Can I buy a house under an LLC?
You can buy a house under an LLC and finance it using mortgages offered by portfolio or investment focused mortgage lenders like Dream Home Financing. The LLC will provide you with personal liability protections while also allowing you to enjoy some tax benefits as a business entity. You should seek advice from legal and accounting professionals to understand the pros and cons of buying a house under an LLC before making a final decision.
When is it Smart to Buy a House Under an LLC?
There are a few instances where it would be smart to buy a house under an LLC. These are just a few examples. Check with an attorney to make sure you are making the right decision for you.
- You may have multiple investment properties and you would like to shelter your personal assets including your primary residence from being party to a future law suit.
- You own a business and would like to fold the costs to live in your primary residence into your business expenses.
- You are trying to keep your name from appearing on the ownership records of the property. Celebrities and others who prefer to remain anonymous purchase their homes under an LLC for this reason.
- You have multiple investment properties and would like to keep them independently protected.
Give us a call and we can help discuss your options.
Pros and Cons of Buying a House Under an LLC
There is no standard answer that we give to each person. Everyone’s situation is different and you will need to evaluate the pros and cons to determine whether buying a home under an LLC Is right for you.
Pros
- Protects the home owner’s personal assets
- Possible tax exemption benefits
- The home asset can be a benefit the business
- Additional privacy for the homeowner
Cons
- Fewer lending options when buying a house under an LLC
- Rates from portfolio lenders may be slightly higher
- It is possible that a larger down payment may be required
- Cannot use conventional or government loans such as FHA
- Potential capital gains impact when the home is sold
How to Buy a House Under an LLC
When purchasing a house under an LLC, lenders will require the same documentation that you would provide if you were applying without the LLC as the purchasing entity. However, you will also likely have to provide the following:
- Certificate of formation detailing your ownership of the LLC
- Operating agreement of the LLC
- Documentation of the income generated by the LLC
- Possibly a current year P&L statement for the LLC
- You may need to do a 1031 tax deferred exchange
Not all of this will be required depending upon your scenario. If this is a new LLC, then you may not have income documentation. We are able to help without any income documentation at all.
Your offer to the seller will be the same as if you were buying as an individual. The rest of the home buying process will also be the same. You will have the same contract, appraisal and standard and customary fees associated with the purchase process and financing.
The most difficult part of the buying process is establishing the LLC if you do not have one already and then finding a lender who is willing to originate the loan for you under an LLC.
Can You Buy a Primary Residence Under an LLC?
There are no laws preventing you from occupying a home that you purchased under an LLC as your primary residence. Where you will have a challenge is finding a mortgage that will allow a primary residence purchase under an LLC.
Conventiona, FHA, VA and USDA loan guidelines do not allow for the home to be purchased under an LLC.
One option you may have is to purchase in your personal name, and then transfer to the LLC later. You must consult your attorny and accountant to make sure this will work for you. Have the attorney also read the loan agreement to make sure you are not going to be held liable in any way.
Lenders Who Can Finance a House Under an LLC
We are able to help you purchase a home under an LLC. Contact us here to discuss your scenario. This is an additional list of just a few lenders who are able to finance your home under an LLC. Each will have different credit score and down payment requirements. They may not be licensed in every state and you may also find that there are loan amount minimums.
- Spencer Savings Bank – Contact
- First National Bank of America – Contact
- Velocity Mortgage – Contact
- Caliber Home Loans – Contact
*These are just a few examples and the lenders who offer loans for purchasing a house under an LLC and they often change guidelines and offerings. We have a full list of lenders who can help. Click to speak with someone.
Buying Investment Properties Under an LLC
Most of the real estate purchases under an LLC occur when the property is being purchased for investment purposes. Usually a multi family type of building for example. In this situation, the idea is to protect yourself from any liabilities that may occur while managing the property as a business.
Some real estate investors have also dealt with false law suits related to their investment properties. This is another reason to protect yourself and your other assets from any personal liability that may arise from a law suit.
Related Questions
Can an LLC Get a Mortgage?
An LLC can get a mortgage to purchase an investment property. In most instances, the individual who owns the LLC will need to apply using his or her credit scores as one of the qualifying factors.
Can I buy a house under an LLC and then rent it to myself?
You can buy the home under an LLC and rent it back to yourself. However, you may end up with a larger tax problem than if you just purchased the home as a sole individual. You will create ghost income for your LLC which will need to be offset by expenses. Over time, the benefit will be negated.
In addition, if you are taking business related tax deductions against your primary residence, you will likely reduce the amount of tax free capital gains on the property.
Is it beneficial to put rental properties into an LLC?
Purchasing a rental property under an LLC is the preferred method to protect your personal assets. If the rental property gets foreclosed upon or a tenant sues the LLC, you cannot be held personally liable and your personal assets will be safe.
What down payment is needed when buying a house under an LLC?
There are lenders who can finance your home with just 10% down even if the home will be owned by an LLC.
What are the interest rates when buying a house under an LLC?
You will be working with portfolio lenders or non-QM lenders when buying a home under an LLC. As a result, you can expect the interest rates to be slightly higher than a conventional mortgage.
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Article on buying a house under an LLC