{"id":155228,"date":"2023-07-17T07:00:00","date_gmt":"2023-07-17T13:00:00","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=155228"},"modified":"2024-02-27T11:59:16","modified_gmt":"2024-02-27T18:59:16","slug":"buying-a-house-with-an-llc","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/buying-a-house-with-an-llc","title":{"rendered":"Buying a House With an LLC: Pros &#038; Cons"},"content":{"rendered":"\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm\/?e=BIGPOC8914924459\" width=\"100%\"><\/iframe>\r\n  \n\n\n\n\n<p>Buying a house with an LLC has many benefits for real estate investors. When the limited liability company owns the property, you can access tax benefits and asset protection. You may also find it easier to partner with other investors. However, setting up an LLC can be complicated, and you may struggle to secure a mortgage loan.<\/p>\n\n\n\n<p>Are you a first-time real estate investor looking to buy your first investment property? Or do you already own multiple properties and wonder if you should transfer property ownership to an LLC? If so, this article is for you.<\/p>\n\n\n\n<p>From setting up an LLC and managing legal and financial considerations, this article will guide you through the process of buying a house with an LLC. You will also learn about the pros and cons of owning an LLC.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What Is an LLC?<\/h2>\n\n\n\n<p>An LLC\u2014or Limited Liability Company\u2014is a legal business structure that protects its owners from personal liability. The LLC structure combines the tax benefits of a sole proprietorship or partnership with the liability protection of a corporation. An individual or multiple people can own an LLC, and there are no restrictions on the types of businesses that can be formed as an LLC.<\/p>\n\n\n\n<p>State laws regulate LLC structures. However, an LLC offers plenty of flexibility for investment property owners. This includes tax benefits, the number of LLC members, and the types of properties you can own. However, it\u2019s good to note that the LLC structure has some property ownership limitations. For example, you cannot live in the home bought under the LLC.<\/p>\n\n\n\n<p>For most property investors, the LLC structure provides the best flexibility and protection when dealing with multiple properties. However, consulting with a real estate tax professional is vital to guide you through local regulations affecting LLC owners.<\/p>\n\n\n\n\n\n\n  <div class=\"lg:block\" x-data=\"{ ad_block_block_64b0348fae97f: popAds(1) }\">\n      <template x-for=\"ad in ad_block_block_64b0348fae97f\">\n        <a\n          :href=\"ad.linkURL\"\n          class=\"no-underline text-black\"\n          x-on:click=\"adClicked('https:\/\/www.biggerpockets.com\/blog\/buying-a-house-with-an-llc', ad.sponsor, ad.title, ad.id, 'blockAdClicked', 'blockAd', '')\"\n          target=\"_blank\">\n          <div\n            class=\"py-4 border-b flex flex-col flex-nowrap text-sm border-t px-0 rounded-none\"\n            x-init=\"\n              analytics.track('blockAdLoaded', {\n                referrer: 'https:\/\/www.biggerpockets.com\/blog\/buying-a-house-with-an-llc',\n                sponsor: ad.sponsor,\n                ad_title: ad.title,\n                ad_page_location: ''\n              })\n            \"\n            x-intersect:enter.once=\"adViewed('https:\/\/www.biggerpockets.com\/blog\/buying-a-house-with-an-llc', ad.sponsor, ad.title, ad.id, 'blockAdViewed', 'blockAd', '')\">\n            <div><span class=\"text-xs text-slate-light block bg-slate-50 p-1 inline-block rounded-md\">Sponsored<\/span><\/div>\n            <div class=\"flex items-center text-sm space-x-4\">\n                <img :src=\"ad.imageURL\" :alt=\"ad.imageAlt\" class=\"h-10 w-10 object-cover rounded-full\">\n\n                <div clas=\"text-sm\">\n                    <span class=\"font-bold block\" x-text=\"ad.sponsor\"><\/span>\n                    <span class=\"text-slate\/80\" x-text=\"ad.description\"><\/span>\n                <\/div>\n            <\/div>\n\n            <div>\n                <span class=\"font-bold\" x-text=\"ad.title\"><\/span>\n                <p class=\"mt-2 text-slate\/80\" x-text=\"ad.body\"><\/p>\n                <span class=\"mt-2 text-themeBlue block mt-2 underline\" x-text=\"ad.linkTitle\"><\/span>\n            <\/div>\n          <\/div>\n        <\/a>\n      <\/template>\n  <\/div>\n\n\n\n\n<h2 class=\"wp-block-heading\">How To Buy a House With an LLC<\/h2>\n\n\n\n<p>An LLC can buy and own a home or any other property type. You can use an LLC to buy rental, fix-and-flip, or commercial properties. Buying a rental property or other real estate investment property with an LLC protects your assets in case of a lawsuit. Although filing as an LLC is not complicated, more paperwork is involved than a standard house sale.<\/p>\n\n\n\n<p>Here are the five steps to buying a house with an LLC.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">1. Create an LLC<\/h3>\n\n\n\n<p>The first step when buying a house with an LLC is to file the necessary documentation. Because state laws regulate the LLC structure, you should consult a real estate attorney specializing in LLCs. It\u2019s also good to note the registration process can take seven to 10 days.<\/p>\n\n\n\n<p>Here is a list of the documents typically required to create an LLC:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>IRS Form SS-4<\/li>\n\n\n\n<li>Name reservation application<\/li>\n\n\n\n<li>Articles of organization<\/li>\n\n\n\n<li>The operating agreement that outlines the ownership structure<\/li>\n\n\n\n<li>Business licenses<\/li>\n\n\n\n<li>Employee Identification Number (EIN)<\/li>\n<\/ul>\n\n\n\n<p>You must register with the Department of Revenue and Taxation in many states for one or more tax types. However, in all cases, you should check which documents are necessary to operate an LLC to run a real estate business.<\/p>\n\n\n\n<p>After <a href=\"https:\/\/www.biggerpockets.com\/blog\/guide-starting-llc\" target=\"_blank\" rel=\"noreferrer noopener\">registering your LLC<\/a>, you can open a bank account and look for an investment property.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">2. Find a suitable property<\/h3>\n\n\n\n<p>Once your legal entity is established, you can start house hunting. In this respect, there is no difference when buying a house with an LLC as if you were a private individual. You must determine a suitable location, conduct market research, and perform due diligence. The only difference is that you make an offer in the name of the LLC.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">3. Obtain financing&nbsp;<\/h3>\n\n\n\n<p>The next step when buying a house with an LLC is to arrange financing. Unfortunately, money lenders are more wary about approving a mortgage loan to an LLC owner than a private individual. Also, because your LLC has no credit history, you may have to pay higher interest rates. Therefore you should ensure all your paperwork is in order before applying for a home loan.<\/p>\n\n\n\n<p>Here are a few caveats when applying for a mortgage to buy a house with an LLC:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>You must apply for a commercial loan.<\/li>\n\n\n\n<li>You cannot take out conventional loans sold to Freddie Mac, Fannie Mae, FHA, or traditional residential mortgages.<\/li>\n\n\n\n<li>It makes sense to get a pre-approval letter for a commercial loan.<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">4. Make an offer<\/h3>\n\n\n\n<p>After deciding on the house to buy with an LLC, you can put in an offer. The process is similar to the regular method of buying a house\u2014the only difference is that the offer is in the LLC\u2019s name. Additionally, all transactions will be made from the LLC.<\/p>\n\n\n\n<p>The purchase agreement should contain the usual contingencies based on the final loan approval, home inspections, property liens, and appraisals.<\/p>\n\n\n\n<p>It\u2019s good to note that mortgage approval may take longer through the LLC than for a private individual.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">5. Close on the property<\/h3>\n\n\n\n<p>If everything is in order after title searches, inspections, and appraisals, it\u2019s time to close the deal on the house. This step involves finalizing the purchase so that the LLC becomes the property&#8217;s new owner. You transfer money from the LLC bank account to the seller\u2019s account and sign all relevant documents.<\/p>\n\n\n\n<p>Depending on the number of LLC business partners and business structure, one or more parties may have to sign the documents.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Pros of Buying a House With an LLC<\/h2>\n\n\n\n<p>The two main advantages when buying a house with an LLC are limited liability protection and legal protection for your assets. These protections mean that you cannot be held personally liable for anything that happens at the property. Additionally, creditors cannot go after your personal assets if the LLC goes bankrupt or defaults on mortgage payments.<\/p>\n\n\n\n<p>However, buying a house with an LLC has many more benefits for investors.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Increased privacy<\/h3>\n\n\n\n<p>The LLC structure means that public records show the property belongs to the LLC. Public records do not show your personal details. Therefore, the LLC allows you to separate your personal life from your business dealings. In certain cases, this is beneficial if you don\u2019t want your ownership to become public knowledge.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Tax benefits<\/h3>\n\n\n\n<p>Tax breaks and dedication are among the biggest advantages an LLC offers to property investors.<\/p>\n\n\n\n<p>For example, LLCs have a pass-through tax structure where the LLC pays taxes on profits. Also, The LLC doesn\u2019t pay federal income tax. Instead, the business owner only pays taxes on the share of profits they receive. Therefore, it eliminates double taxation, where you are taxed at a personal level and business level.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Limited liability protection<\/h3>\n\n\n\n<p>Buying a house with an LLC means avoiding potential lawsuits as a business owner. For example, you have protection against liability for debts or being sued because of someone injuring themselves on the property. Because the LLC is the owner, only assets owned by the corporation are at risk, not your personal possessions.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Asset protection<\/h3>\n\n\n\n<p>When you buy a house with an LLC, you protect your personal assets and those of the other LLC members. This benefit can be especially useful if you work in a profession or run a business with a greater risk of lawsuits or claims. You do not have to fear losing your primary home, vehicle, or other assets to settle a claim on the LLC property.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Ownership flexibility<\/h3>\n\n\n\n<p>One of the benefits of an LLC is to allow multiple members to share ownership. For example, you can attract more real estate entrepreneurs to your enterprise. These can include corporations, individuals, and other foreign entities. Also, most states allow for \u201csingle-member\u201d LLCs. Therefore, there are many options for owning property through an LLC.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Estate planning<\/h3>\n\n\n\n<p>One of the best pros of buying a house with an LLC is estate planning. For example, it\u2019s possible to transfer property ownership by increasing the share of individual LLC members\u2014such as family members. Additionally, you could include a clause in the operating agreement outlining that the property should be passed to your children.<\/p>\n\n\n\n<p>Therefore, transferring a house to an LLC can mean minimizing estate and gift taxes.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Cons of Buying a House With an LLC<\/h2>\n\n\n\n<p>Buying a house with an LLC may not be the ideal option for everyone. The cost of setting up the LLC, increased mortgage costs, and a lack of capital gains tax benefits can be a <a href=\"https:\/\/www.biggerpockets.com\/blog\/real-estate-llc-not-best-option\" target=\"_blank\" rel=\"noreferrer noopener\">disadvantage for some investors<\/a>. Let\u2019s look at some of these disadvantages in more detail.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">LLC maintenance costs<\/h3>\n\n\n\n<p>Setting up and maintaining an LLC incurs extra costs in legal fees. First, you must pay registration fees. Depending on your state, these can range between $50 and $500. Additionally, you have to pay annual fees. These can include the following:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Annual LLC taxes<\/li>\n\n\n\n<li>Annual report fees<\/li>\n\n\n\n<li>Registered agent fees<\/li>\n\n\n\n<li>Business license renewal fees<\/li>\n\n\n\n<li>Business permit fees<\/li>\n<\/ul>\n\n\n\n<p>Depending on local state laws, LLC owners may pay around $1,000 in fees annually.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Limited finance options<\/h3>\n\n\n\n<p>Financing a real estate purchase is tricker for LLC owners. There are two basic issues. First, mortgage options are limited. Second, financing costs are higher.<\/p>\n\n\n\n<p>Applying for a mortgage through an LLC means you cannot apply for FHA loans, Freddie Mac, Fannie Mae, or other conventional loans. Additionally, mortgage lenders may have more stringent requirements. This is because of the liability protection LLCs offer.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Buying a house with an LLC costs more<\/h3>\n\n\n\n<p>Due to the risks involved, lenders usually charge more to finance property investments. Because the property isn\u2019t your primary residence, money lenders realize that the income property will be low on priorities if you face financial hardship. Therefore, they charge more for their services.<\/p>\n\n\n\n<p>Additional costs associated with getting a commercial loan can include the following:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Higher down payment<\/li>\n\n\n\n<li>Higher interest rates<\/li>\n\n\n\n<li>Personal guarantee on the loan<\/li>\n<\/ul>\n\n\n\n<p>Sometimes, it\u2019s easier to arrange financing to buy a house with an LLC through private or asset-based lenders.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">No capital gains tax exemption<\/h3>\n\n\n\n<p>When selling a real estate investment, you lose the capital gains exemption. Typically, homeowners who sell their primary residence are exempt from capital gains for the first $250,000 of profit ($500,000 if married). However, that doesn\u2019t apply if the LLC bought the home. Therefore, the LLC must pay capital gains tax on 100% of the profit.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Other Restrictions When Buying a House with an LLC<\/h2>\n\n\n\n<p>Due to the LLC business structure, you cannot live in a property you bought with a corporate entity. To do so would mean \u201cpiercing the corporate veil.\u201d For example, you could become liable for corporate damages and put your personal assets at risk. Therefore, the house must stay separate from your personal use.<\/p>\n\n\n\n<p>You can transfer your current home to an existing LLC. However, you may be liable for hefty fees unless the mortgage is paid off. For example, transferring property to an LLC could trigger mortgage acceleration and due-on-sale clauses. This could result in having to apply for another mortgage.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Other Business Structures for Real Estate Investors<\/h2>\n\n\n\n<p>Buying a house with an LLC has definite advantages over a sole proprietorship. The LLC gives you liability protection, protecting your personal assets and limiting your legal liability. Depending on your financial goals and circumstances, other business structures to buy an investment house could be advantageous.<\/p>\n\n\n\n<p>Here is a brief explanation of corporate entities you can use to buy a house.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>S-corporation: <\/strong>Also known as S-Corp, this type of corporation has several tax perks. The profits are passed on to individual members who file them on their tax returns. Investors can deduct expenses like property taxes and depreciation. However, more stringent restrictions on S-corps make them less desirable than an LLC for owning property.<\/li>\n\n\n\n<li><strong>C-corporation: <\/strong>A C-Corp has some tax benefits for property investors. However, you pay more capital gains tax than you would with an LLC. Additionally, your personal assets could be at risk in the event of a lawsuit.<\/li>\n<\/ul>\n\n\n\n<p>Extra taxes are another reason why a C- or S-corporation is not advised for real estate investors. The property is subject to taxes when transferring out of the corporation. However, with an LLC or Limited Partnership (LP), no taxes are imposed on such transfers. Also, you will find that having an LLC or LP is more beneficial during refinancing.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Should You Use an LLC to Buy a House?<\/h2>\n\n\n\n<p>Using an LLC to buy a house can benefit many investors; however, it may not be for everyone.<\/p>\n\n\n\n<p>The LLC corporate structure means that you enjoy liability and legal protection. It also helps you separate personal finances and taxes from the business entity. However, additional costs and limitations exist before setting up an LLC to run a real estate business.<\/p>\n\n\n\n<p>Buying real estate in your own name may be more advantageous if you are a first-time investor. Doing this limits your initial costs, and there are fewer legal and financial hurdles to jump. However, as your portfolio grows and you gain experience, buying rental properties with an LLC is the best option to protect your assets and investments.<\/p>\n\n\n\n    \n  <div id=\"visibility-group-block_e416ded5c72a8edab28cb402d096a9b8\" class=\"visibility-group  hidden\">\n        \n\n<div id=\"hero-block_6a27779104abfe3d6964c963fbfc18c7\" class=\"first:mt-0 hero-block py-4  alignwide   has-background has-theme-gold-light-background-color has-text-color has-theme-gold-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<p class=\"has-theme-gold-color has-text-color has-large-font-size\" style=\"font-style:normal;font-weight:800\">Get the Best Loan Today<\/p>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-slate-900-color has-text-color\" style=\"font-size:16px\">Find trusted, <em><strong>investor-friendly<\/strong><\/em> lenders who specialize in your strategy. <\/p>\n\n\n\n<p><\/p>\n\n\n\n<div id=button-custom-event-block_d241862f6e4db6358e093e0f348fbfb6 class='button-custom-event'>\n      <a\n    href=\"https:\/\/www.biggerpockets.com\/business\/finder\/lenders\"\n        x-on:click=\"window.analytics.track('Blog Block | B2C Marketplace Lender Finder', {\n      referrer: 'https:\/\/www.biggerpockets.com\/blog\/buying-a-house-with-an-llc',\n    });\"\n    class=\" btn-shape inline-block no-underline has-background has-theme-gold-background-color has-text-color has-white-color\" target=\"_blank\">Find a Lender<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n                <div class=\" first:mt-0 relative h-full lg:flex lg:items-center\">\n            <img decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md hidden lg:block\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/08\/Marketplace-Blog-Blocks-Lender-v3.png\" alt=\"investor friendly lender, investor friendly real estate loans\" title=\"\">\n        <\/div>\n            <\/div>\n<\/div>\n\n  <\/div>\n  \n\n\n<div class=\"wp-block-group\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n    \n  <div id=\"visibility-group-block_64dd31c79f00f\" class=\"visibility-group  \">\n        \n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div id=\"hero-block_64dd2875dba9d\" class=\"first:mt-0 hero-block py-4    has-background has-slate-100-background-color has-text-color has-theme-slate-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<h3 class=\"wp-block-heading my-0 tracking-tight font-extrabold has-theme-slate-dark-color has-text-color has-large-font-size\">Join the community<\/h3>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-theme-slate-color has-text-color\" style=\"font-size:16px;font-style:normal;font-weight:400\">Ready to succeed in real estate investing? Create a free BiggerPockets account to learn about investment strategies; ask questions and get answers from our community of +2 million members; connect with investor-friendly agents; and so much more. <\/p>\n\n\n\n<div id=button-custom-event-block_64dd2888dba9e class='button-custom-event'>\n      <a\n    href=\"https:\/\/www.biggerpockets.com\/signup\"\n        x-on:click=\"window.analytics.track('Blog Block | Acquisition | Free Membership Signup', {\n      referrer: 'https:\/\/www.biggerpockets.com\/blog\/buying-a-house-with-an-llc',\n    });\"\n    class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\" target=\"_blank\">Sign Up<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n            <\/div>\n<\/div>\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n  <\/div>\n  <\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>Here are a few pros and cons you need to know before closing the deal.<\/p>\n","protected":false},"author":613648,"featured_media":155232,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4241,7119],"tags":[],"class_list":["post-155228","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-business-management","category-biggerpockets-daily"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/155228","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613648"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=155228"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/155228\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/155232"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=155228"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=155228"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=155228"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}