L.L.C. owned property disqualifying first -time home owner?

Question

My partner and I are deciding on whether or not to team up and start an LLC to purchase property together. I already own several SFH, while he does not. He asked a question that really stumped me. First off, we both rent small apartments. If our property is owned through an LLC would that disqualify him from the advantages of a first time home buyer when he purchases his own personal residence in the future? If it does disqualify him, he was not worried, but I just thought it was an interesting question to ask!

Scott Smith · Answer

Hey @Ryan Dusel,

Purchasing a property directly into an LLC will often limit your best rates, forcing you in many cases to use a conventional loan. This isn't always the case, so I would encourage you to talk to your lender about this before moving forward.

One strategy I see many clients use to hold onto favorable rates is by implementing land trusts into the equation. The individual would purchase the property in their own name, then transfer the property into a land trust (which is protected from the Due on Sale Clause by the St Germain Act.) Once the transfer is complete the individual would then assign the LLC as the beneficiary of the land trust. This article explains it more. The added benefit of using a land trust is that you can actually remove your name(s) from public record if you establish the trust correctly, having your attorney sign as a Nominee Trustee and hence creating an attorney-client privilege protecting your name(s).

Once again, I would chat with your banker to see what they are offering.

This is not legal advice, just my opinion as a real estate investor.