Renting from LLC that I am a member of
Hi all,
New member here. I have a question that is a bit different to what others have asked re. renting from a property held in the name of an LLC you are partnered in, so I'm hoping someone can help out or give some advice on my idea.
I currently own a home with my wife that we've lived in for just 6 months. It's a 3 bd/2 ba condo. It would rent out very easily for ~$2400-2500/month. We like the home but it's not a long term solution and we can already see there are obstacles to our happiness in living here. It is, however, perfect for the rental market where we live due to its location and specs - these are some of the reasons we purchased it.
I'm also a member of a 3-party LLC that has been formed with the express purpose of purchasing real estate as an investment. I act as the signatory authority on financial and business deals; the other two members are my parents who are providing the main bulk of the capital. We are currently searching for a suitable property as an investment. We have enough capital to purchase a house in cash in a nearby neighborhood with the target of $2000/month in rent; that is considered the fair market rate for the sort of house we're looking at.
What are the tax/legal considerations of the LLC purchasing a house and my wife and I renting it from the LLC? We would pay the LLC fair market rent - we're not interested in tax loopholes or taking deductions on things like utilities or mortgage interest (no financing required). We just prefer the idea of not having to deal with HOAs and noisy neighbors above and below us. We'd also be paying less than our current mortgage + HOA fees + taxes in this potential home when you factor in rent received from our current home. The other two members of the LLC are fine with this arrangement if it's at all possible; the LLC receives guaranteed rent payments from the first month of ownership as well as a known, responsible party to tend to the property (this is an important consideration for my parents as they live abroad). They could rent out an investment property to a regular tenant but they wouldn't be guaranteed 100% vacancy and a responsible party to look after the property.
Does this sort of thing happen? If so, what do we need to be mindful of? I sort of thought of this idea without considering it too much so let me know if it's stupid or not possible. I will run this past my real estate attorney when she returns from vacation, I just wanted to see what people thought on this forum first before tendering the idea.
Thanks in advance for any help!